Fiscal Nepal
First Business News Portal in English from Nepal
KATHMANDU: The Nepal Rastra Bank (NRB) has issued a fresh circular instructing all licensed banks and financial institutions (BFIs) to submit their Long Form Audit Reports (LFAR) in a newly prescribed uniform format, in both hard copy and digital form, while warning that failure to comply may result in regulatory action.
The central bank’s circular, circulated to all commercial banks, development banks and finance companies, states that LFARs must be compiled strictly based on the standardized reporting template prepared by the NRB. All audit firms engaged by BFIs are also required to comply with the prescribed structure while conducting and submitting audit observations.
The NRB has further reminded BFIs that LFARs must be submitted not only to the central bank but also tabled before the institution’s internal Audit Committee, and that any issues raised in the audit report must be discussed with action plans. Banks must also separately submit a compliance report explaining how they have addressed the deficiencies or risks highlighted in the LFAR.
Linking to Previous Oversight Issues
The directive comes after NRB expressed dissatisfaction in the last fiscal year over delayed and inconsistent LFAR submissions, which had revealed gaps in credit risk assessment, loan classification, internal control systems and governance standards of several institutions. The NRB had earlier observed that many banks were treating the LFAR as a mere formality and were not taking corrective steps based on audit findings.
The central bank has now tightened the reporting process, stating that any bank that fails to submit the LFAR or fails to address major observations in time may face regulatory penalties, supervision triggers, or enforcement action under the Bank and Financial Institutions Act (BAFIA).
Key Directives Contained in NRB Circular:
All BFIs must use the standard LFAR format issued by NRB.
Reports must be submitted to NRB in hard copy and soft copy within the deadlines.
BFIs must present the LFAR to their Audit Committee and discuss all points raised.
A separate compliance report must be submitted, explaining how each observation has been addressed.
Audit firms must ensure that all LFARs are accurate, complete and properly reviewed before submission.
NRB Emphasizes Accountability
NRB has emphasized that the LFAR is a key supervisory tool for assessing the health of BFIs and ensuring transparency in lending practices. The circular states that “the LFAR observations should not remain at audit level only, but must be translated into practical corrective measures by the institution’s management.”
With rising concerns over credit concentration, loan restructuring, and internal fraud incidents, NRB has stated that strict implementation of LFAR findings is essential for maintaining financial stability.
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