Nepal Financial

Reporting
Standards (NFRS)
Subjects of Accounting

• CAP-I: Fundamentals of Accounting

• CAP-II: Advanced Accounting (20-30% NFRS Content)
• CAP-III: Advanced Financial Reporting
CAP-II: NFRS Syllabus
Standards related to Assets

• NAS 16 – Property, Plant and Equipment

• NAS 2 – Inventories
• NAS 23 – Borrowing Costs

Standards related to Presentation

• NAS 1 Presentation of Financial Statements

• NAS 7 Statement of Cash Flow
• NAS 8 Accounting Policies, Change in Accounting Estimates and Errors

Standards related to specific transactions

• NAS 37 Provisions, Contingent Liabilities and Contingent Assets

• NAS 10 Events after Reporting Period
• NAS 20 Accounting for Government Grants and Disclosure of Government Assistance
• NAS 21 The Effects of Changes in Foreign Exchange Rates
• NFRS 15 Revenue from Contract with Customers
• NFRS 16 Leases
• NFRS 3 Business Combination
Accounting Standards

• Accounting Standards are set of

principles, rules, procedures of
accounting drafted to communicate the
financial performance, position and cash
flows along with necessary disclosures so
as to facilitate informed decision making
of the users of the financial statements.
Legality of
NFRS Sec. 108 of Companies Act 2063

Sec. 59 of Bank and Financial

Institution Act 2073 [NRB Directive 4]

Sec. 90 of Nepal Rastra Bank Act

Standards drafted by regulatory body

ICAN
Accounting Formed u/s 15A of Nepal Chartered
Standards Accountants Act 2053 by Government of
Board (ASB) Nepal

Nepal
Prepares Accounting Standards

Send to ICAN for pronouncement

ICAN determines the effective dates

Reasons for prevalence of IFRS in many countries

High quality Access to

Financial User-friendly F.S Uniformity international
Statements finances

Enhancement of Comparability
Globalisation
major economic among similar
and Integration
decisions industries
Reasons against
Cost of setting up and
IFRS maintaining a standard-
setting apparatus

Standards cannot address

all issues/transactions

Low level of details and

explanations in the
Standards
 Body
Standards

Trunk
Conceptual Framework

Roots
General users
CONCEPTUAL
FRAMEWORK
The Constitution of NFRS
Conceptual Framework • A constitution, a coherent
system of interrelated
objectives and fundamentals
that can lead to consistent
standards
• It promotes consistency in
the application of
accounting principles and
policies
 Objective of General Purpose Financial Reporting
8 Chapters
Qualitative Characteristics of Useful Financial Information

Financial Statements and the Reporting Entity

Elements of Financial Statements

Recognition and Derecognition

Measurement

Presentation & Disclosure

Concepts of Capital and Capital Maintenance

Fundamental Qualitative Characteristics

- Relevance

- Faithful Representation

• Complete
• Neutral (without bias)
• Free from error

Neutrality is supported by exercise of prudence.

Prudence is the exercise of caution when making judgments under conditions of

uncertainty.
Financial
Statement of Financial Position as at the
Statements end of the period

Statement of Profit or Loss and Other

Comprehensive Income for the period

Statement of Cash Flow for the period

Statement of Changes in Equity for the

period

Notes, comprising summary of

significant accounting policies
Reporting Entity and Reporting
Period

• Reporting Entity = The entity whose financial statements

is being prepared
• Reporting Period = The period whose results are being
presented by the financial statements
Example: A Ltd. prepares Statement of Profit or Loss for FY
2079-80. Here, A Ltd. is the reporting entity and 2079-80 is
the reporting period.
Going Concern •It is an accounting assumption
Assumption which states that an entity shall
continue for a foreseeable
future and there is neither
necessity nor intention to
liquidate or curtail materially its
scale of operations. The
assumption is particularly
relevant for valuation of assets
and also on their presentation.
Elements of Financial Statements

ASSETS LIABILITY INCOME EXPENSE EQUITY

Asset = Control + Future Economic Benefit
Right to use
Right to restrict others to use

01 02 03
Resource As a result of past From which future
controlled by event economic
entity benefits are
expected to flow
to the entity
Liability
Present Obligation

As a result of past event

The settlement of which requires

an outflow of resources
embodying economic benefits
Income
- Revenue Increase in economic benefits as a
- Gain result of
• Inflow
• Enhancement of asset
• Decrease in liability

That increases the equity

Other than those resulting from

contribution from equity participants
Expense
- Expense Decrease in economic benefits as
a result of
- Loss
• Outflow
• Depletion of asset
• Increase in liability

That decreases the equity

Other than those resulting from

distribution to equity participants
Equity
Source = Resource

→ Equity + Liability = Asset

→ Equity = Asset – Liability

It is the residual interest of

asset over liability
Recognition criteria

When the definition of Amount can be

the element is met measured reliably
(monetary concept)
Measurement
Basis
Historical Current
Cost Cost

Realisable Present
Value Value
Concept of Capital

PHYSICAL CAPITAL CONCEPT FINANCIAL CAPITAL CONCEPT

• Capital is represented by • Capital is represented by

entity's productive entity's financial value of
capacity/operating capital.
capability. • Profit is earned only when
• Profit is earned only when the financial value of capital
the operating capability increases.
increases.