Nepal Rastra Bank Revises External Audit Framework
19th August 2025, Kathmandu
In a significant move to enhance financial transparency and regulatory oversight, the Nepal Rastra Bank (NRB), the central bank of Nepal, has revised its external audit framework for banks and financial institutions (BFIs).
NRB External Audit Revision
This new directive, which becomes mandatory from the fiscal year 2081/82, fundamentally changes how external audit reports are prepared and submitted, aiming to improve the overall financial health and accountability of the banking sector.
The New Directive: A Shift Towards Greater Transparency
The core of the NRB’s revised framework is the requirement for all BFIs to prepare their long-form audit reports in a new, specified format. This is not merely a cosmetic change; the new format is designed to ensure that audit reports are “timely and effective” and provide a clearer, more accurate reflection of an institution’s financial position. Previously, while there was a prescribed format for these reports, their direct submission to the central bank was not a requirement. This new rule closes a significant gap in the regulatory process, giving the NRB direct access to critical audit findings.
The revised directive is a proactive step by the NRB to strengthen its supervisory role. By mandating a standardized, effective reporting format and requiring direct submission, the central bank can more efficiently monitor the financial health of the banking sector. This enables quicker identification of potential risks, such as high non-performing loans (NPLs) or inadequate provisioning, and allows the NRB to take timely corrective actions. This direct line of communication with external auditors also strengthens the independent oversight of BFIs, as the auditors’ findings are now directly available to the primary regulator.
Implications for Banks and Financial Institutions
For banks and financial institutions, the revised framework necessitates a change in their internal processes. They must now ensure that their audit preparations strictly adhere to the new format and that the final reports are submitted to the NRB without delay. This puts greater pressure on BFIs to maintain robust internal controls and financial reporting systems throughout the fiscal year, as any deficiencies will be immediately apparent in the audit report.
The new framework also has significant implications for external audit firms. They are now directly accountable to the central bank in a way they weren’t before. The quality and timeliness of their reports are under direct regulatory scrutiny, which will likely lead to a higher standard of auditing across the sector. The NRB’s move also reinforces the independence of auditors, as their reports are now a direct source of information for the central bank, rather than being filtered through the BFI’s management. This can help prevent situations where critical audit findings are downplayed or hidden from the regulator.
Conclusion: A Step Towards a Healthier Financial System
In summary, the Nepal Rastra Bank’s revised external audit framework is a landmark change in the country’s financial regulatory landscape. By making the new format for long-form audit reports mandatory, ensuring they are timely and effective, and requiring their direct submission, the NRB is establishing a more transparent and accountable system. This directive, effective from the current fiscal year, will not only improve the quality of financial reporting but also empower the central bank to proactively manage systemic risks, ultimately contributing to a more stable, secure, and resilient financial sector in Nepal. This shift towards stricter oversight is a crucial step in building public trust and ensuring the long-term health of the country’s economy.
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