If your business has been preparing financial statements the same way for years, NFRS compliance might feel like a sudden shift. For many small and medium-sized entities in Nepal, mandatory adoption of NFRS for SMEs is no longer something to plan for someday. It is already here, and auditors are checking for it.
Here is what SMEs in Nepal need to understand about NFRS 2024, why it applies to your business, and what to get in order before your next audit.
Nepal Financial Reporting Standards are Nepal’s version of international accounting standards, developed by the Accounting Standards Board Nepal and issued through the Institute of Chartered Accountants of Nepal. The goal is to bring Nepali financial statements closer to global norms, making them more transparent, comparable, and trusted by investors, lenders, and other stakeholders.
For years, many SMEs in Nepal prepared accounts using a more informal, rules-based approach rather than a formal accounting framework. NFRS for SMEs changes that. It is a simplified version of the full NFRS, built specifically for smaller entities that do not have public accountability, meaning they are not listed companies, banks, or other entities with major public borrowings or deposits.
Understanding where your business fits matters, since it determines which standard applies to you.
1. Entities with public accountability. This includes listed companies, banks, insurance companies, and organizations with significant public borrowings. These entities follow the full NFRS.
2. Entities without public accountability that qualify as SMEs. This is where most private businesses fall. These entities follow NFRS for SMEs, a lighter version of the full standard.
3. Micro entities without public accountability. Very small entities that fall below the SME thresholds follow a separate, simplified standard for micro entities.
If your business has grown in size or taken on debt in recent years, it is worth checking whether you still qualify as an SME under the current thresholds, since crossing certain size limits for two consecutive years can shift your entity into a different reporting category.
NFRS for SMEs was pronounced effective from mid July 2019, but mandatory implementation was extended multiple times to give businesses room to prepare. The mandatory effective date has since moved to the fiscal year starting mid-July 2023, with full adoption expected across qualifying SMEs from that point forward. This means many SMEs that previously operated under looser reporting practices are now expected to have NFRS-compliant financial statements in place.
A few of the practical shifts this brings:
Getting ready for an NFRS-compliant audit takes some groundwork. Here is where to start.
1. Confirm your entity classification. Check whether your business still qualifies as an SME under current thresholds, or whether growth has pushed you into a different category with different requirements.
2. Review your current chart of accounts. Older account structures built for tax reporting alone often do not map cleanly onto NFRS categories. This is usually one of the first things that needs adjusting.
3. Move to accrual-based bookkeeping if you haven’t already. If your books are still largely maintained on a cash basis, this is a foundational change that needs to happen before financial statements can be NFRS compliant.
4. Prepare the full set of required statements. Make sure your year-end reporting includes all the statements NFRS for SMEs requires, not just a summary income statement and balance sheet.
5. Document your accounting policies. Auditors will expect to see clear, written policies on how you recognize revenue, value inventory, depreciate assets, and handle other significant accounting areas.
6. Identify related party transactions. Any transactions with owners, directors, or related entities need to be identified and disclosed properly.
7. Review asset valuations. Fixed assets, inventory, and receivables may need to be reassessed under NFRS principles, particularly around impairment and depreciation methods.
8. Get comparative figures in order. NFRS requires comparative information from the prior period, so last year’s figures need to be restated consistently if they weren’t originally prepared under NFRS.
A few issues come up repeatedly when SMEs go through their first NFRS-compliant audit:
NFRS for SMEs is not just a box to check for your auditor. Financial statements prepared under NFRS are more useful for the business itself, giving a clearer picture of financial position and performance. They also matter if you are seeking bank financing, bringing in investors, or working with international partners, since NFRS-compliant statements are far more comparable to what lenders and investors expect to see.
Businesses that wait until the last minute to address these gaps tend to face longer, more difficult audits, along with a higher chance of qualified audit opinions that can affect financing applications or investor confidence.
The transition from informal or tax-focused accounting to full NFRS 2024 compliance rarely happens overnight. It usually takes a full accounting cycle or more to get systems, policies, and historical figures properly aligned. Starting the process well before your audit date, rather than scrambling in the weeks leading up to it, makes for a smoother review and gives you time to fix issues before they show up as findings.
Don’t wait until your audit begins to identify compliance gaps. GPR Chartered Accountants can help you assess your current financial reporting, implement NFRS for SMEs, and prepare audit-ready financial statements with confidence. Contact our team today to ensure your business is ready for its next audit.
It applies to entities that do not have public accountability and meet the SME classification thresholds. Very small businesses may fall under a separate micro entity standard instead, so it’s worth confirming which category your business fits into.
Full NFRS applies to entities with public accountability, such as listed companies and banks, and involves more extensive disclosure and complexity. NFRS for SMEs is a simplified version built for smaller, privately held entities, though it still requires a complete set of financial statements and proper disclosures.
Your auditor may issue a qualified opinion, noting the areas where your financial statements do not conform to the applicable standard. This can affect your standing with banks, investors, or regulators who rely on audited financial statements.
It varies by business, but restructuring your chart of accounts, moving to accrual accounting, and preparing proper comparative figures often takes a full accounting cycle. Starting well ahead of your audit date gives you room to work through these changes properly.
Many accountants can handle the transition, but NFRS compliance work benefits from experience with the specific standard, since it involves judgment calls around valuation, disclosure, and classification that a general bookkeeping background may not fully cover.
