Company Audit Requirements in Nepal: Statutory Audit Rules & Thresholds

In Nepal, audit isn’t just a formality it’s a legal responsibility for every company, big or small. Whether you operate a private startup, a growing SME, or a foreign-invested firm, you are required to maintain transparent financial records and verify them through an independent auditor.

Audits protect:

• Investors (trust and transparency)

• Banks (loan approval depends on audited statements)

• Government compliance (tax & regulatory accuracy)

• Business owners (fraud prevention and financial clarity)

With the rise of digital reporting and stricter corporate laws, understanding Nepal’s audit requirements is essential for all entrepreneurs and company directors.

Is Audit Mandatory for Companies in Nepal?

Yes, under the Companies Act, 2063, ALL registered companies even small one-person private firms must conduct a statutory audit every fiscal year.

This includes:

• Private Limited Companies

• Public Limited Companies

• One-Person Companies

• Companies with Foreign Investment

• NGOs registered as companies

• Foreign branch/liaison offices operating in Nepal

If you are officially registered as a company, an audit is not optional.

Audit Threshold in Nepal: Is There a Minimum Turnover Requirement?

No turnover threshold, Nepal does not base audit requirements on annual turnover, number of employees, or company size.

Every company, regardless of revenue or activity level, must undergo audit annually.

However, certain special rules apply for bigger firms:

Public Companies

• Must form an Audit Committee if paid-up capital is NPR 30 million or more.

Foreign Companies

• Must submit audited financials every year, even if Nepal operations are small or non-revenue generating.

What Requires a Company to Be Audited?

Your company requires an audit if you:

• Are registered under the Companies Act

• Have shareholders

• Maintain financial transactions

• Must file tax/VAT returns

• Are applying for bank loans or foreign investment

• Want legally valid financial statements

In short, all corporate entities operating in Nepal require an audit by law.

Audit Standards Followed in Nepal

Audits must comply with:

• Nepal Standards on Auditing (NSA)

• Nepal Financial Reporting Standards (NFRS)

• Audit Guidelines issued by the Office of the Auditor General

• ICAN audit manual & professional code of conduct

These standards ensure uniformity, accountability, and international-level reporting.

Step By Step Statutory Audit Process in Nepal

Here’s a clear breakdown of how a standard company audit is conducted:

1. Auditor Appointment

Companies must appoint a licensed auditor (ICAN-registered) each year during the AGM or BoD meeting.

2. Auditor Planning & Engagement

The auditor reviews:

• Business model

• Internal controls

• Risk areas

• Accounting systems

They prepare an audit plan before beginning verification.

3. Verification of Financial Records

Auditors examine the company’s:

• Cash book & ledgers

• Bank statements and reconciliations

• Sales, purchases, VAT entries

• Payroll & employee benefits

• Fixed assets & depreciation

• Loans, liabilities, & receivables

• Inventory & stock records

• Tax filings & returns

4. Physical Inspection (If Needed)

Auditors may visit the business to verify:

• Inventory

• Machinery

• Office property

• Stock levels

• Contracts

5. Compliance Check

Auditors ensure the company is compliant with:

• Tax laws

• Labor regulations

• PAN/VAT requirements

• ROC filing obligations

6. Audit Report Issuance

After the review, the auditor provides:

• Independent Auditor’s Report

• Management Letter containing recommendations

• Certified financial statements

This report must be submitted to:

• Internal Revenue Department (IRD)

• Office of the Company Registrar (for applicable firms)

• Nepal Rastra Bank (for regulated sectors)

• Donors/Investors (if required)

Not Conducting Audit? Here Are the Consequences

Failing to audit your company results in:

• Penalties from the Company Registrar

• Tax scrutiny & fines from IRD

• Legal liability for directors

• Inability to renew business licenses

• Rejection of bank loans

• Problems attracting investors

• Risk of company deregistration

For public and foreign companies, consequences are even more severe, including suspension or cancellation of operations.

Who Is Authorized to Perform Audits in Nepal?

Only professionals licensed by:

Institute of Chartered Accountants of Nepal (ICAN)

may conduct statutory audits.

Unlicensed individuals cannot legally prepare audit reports.

Documents Required for Company Audit

Companies must provide:

• Journal, ledger & trial balance

• Bank statements and vouchers

• Sales & purchase registers

• Inventory records

• Payroll & HR details

• VAT & tax filings

• Board resolutions

• Contracts & agreements

• PAN/VAT certificates

• Previous year audit reports

Organized documentation results in faster, cheaper audits.

Audit Frequency in Nepal

1. Mandatory annual audit

All companies must be audited every fiscal year even if the company had zero transactions. Public companies may undergo additional internal audits as required.

How Much Should Companies Expect to Pay?

Audit fees depend on company size and complexity.

Average cost range:

• Small Private Company: NPR 30,000 – 80,000

• Medium Business: NPR 80,000 – 200,000

• Large Enterprises: NPR 200,000+

Companies with complex operations, high transactions, or multiple branches pay more.