A statutory audit is an independent examination of an entity's financial statements required by law, resulting in an auditor's opinion on whether those statements present a true and fair view. In Nepal, the obligation applies far more widely than many founders expect: every company registered under the Companies Act, 2063 — private or public, large or dormant — must appoint an auditor and have its annual financial statements audited. Cooperatives, NGOs, INGOs and entities registered under other statutes carry parallel audit obligations under their own governing laws and regulators.
Who can audit a Nepali entity?
Audits may only be performed by members of the Institute of Chartered Accountants of Nepal (ICAN) holding a valid Certificate of Practice. ICAN licenses practitioners in classes: Chartered Accountants may audit any entity, while Registered Auditors in other classes are restricted to entities below prescribed turnover and capital thresholds. Banks, insurers, listed companies and other public-interest entities must be audited by Chartered Accountants, and sector regulators such as Nepal Rastra Bank maintain their own auditor eligibility lists.
The auditor is appointed by the shareholders at the annual general meeting (the board appoints the first auditor of a new company), and the same auditor generally cannot be appointed for more than three consecutive terms for certain classes of company — a rotation discipline designed to protect independence.
The audit process, step by step
- Engagement and independence checks — the auditor confirms there is no conflict of interest and issues an engagement letter defining scope and responsibilities.
- Planning and risk assessment — understanding the business, its internal controls and the areas where misstatement risk is highest.
- Fieldwork — testing transactions and balances: bank reconciliations, revenue cut-off, inventory counts, fixed asset verification, payables and receivables confirmation, tax balances.
- Reporting — the auditor issues an opinion (unqualified, qualified, adverse or disclaimer) together with observations for management.
- Follow-through — the audited statements are laid before the AGM, filed with the Office of the Company Registrar and used for the income tax return.
Deadlines that matter
Nepal's fiscal year runs from Shrawan 1 to Ashad end (roughly mid-July to mid-July). The income tax return — which must be based on audited figures — is due within three months of the fiscal year end, with an extension of up to three further months available on application to the Inland Revenue Department. Companies must also hold their AGM and file annual returns with the Company Registrar within statutory time limits. Missing the audit window therefore triggers a chain of consequences: late tax filing fees, interest on unpaid tax, and accumulating penalties for un-filed company returns.
How to prepare so the audit runs smoothly
- Reconcile every bank account to the ledger before fieldwork begins.
- Keep purchase and sales vouchers, contracts and board minutes filed and complete.
- Prepare a fixed asset register with additions, disposals and depreciation.
- Reconcile VAT and TDS filings with the books month by month.
- Resolve prior-year audit observations — auditors always follow up.
Treated seriously, the statutory audit is more than a compliance cost. The management letter that accompanies a rigorous audit is often the cheapest internal-controls consulting a growing business will ever receive.
Frequently asked questions
- Does a dormant or loss-making company in Nepal still need an audit?
- Yes. The Companies Act, 2063 requires every registered company to have its annual financial statements audited, regardless of size, activity level or profitability.
- Can any accountant sign an audit report in Nepal?
- No. Only ICAN members holding a valid Certificate of Practice may sign audit reports, and larger entities must be audited by a Chartered Accountant.
- When should we appoint our auditor?
- At the annual general meeting for each fiscal year. New companies should have the board appoint the first auditor promptly after incorporation so the first year's audit is not rushed.
This note is general information prepared by A. Adhikari & Associates, Chartered Accountants, and is not professional advice for any specific situation. Rates, thresholds and procedures change through annual Finance Acts and regulatory updates — please consult our team before acting.
