Page 1 of 11
Journal for Studies in Management and Planning
Available at http://edupediapublications.org/journals/index.php/JSMaP/
e-ISSN: 2395-0463
Volume 02 Issue 6
June 2016
Available online: http://edupediapublications.org/journals/index.php/JSMaP/ P a g e | 97
A Decade Back: Comparative Analysis of Accounting
Practice in Commercial Bank of Nepal
Suraj Gaudel
BBA Program Coordinator LA GRANDEE International College (Affiliated to Pokhara University)
Simalchaur-8, Pokhara, Nepal
E-mail: surajgaudel@gmail.com
Abstract
This research was conducted to analyze the
change in accounting practice in commercial
bank of Nepal within last ten years. Not only
secondary, but also primary data were
collected through direct interview and
questionnaire survey. 11 questions were
asked with 24 staffs of 6 commercial banks
listed in the Nepal Stock Exchange. Three to
five point Likert Scale with various Likert
items were used in the data collection
process. Measure of central tendency was
used to analyze data. Within these ten years
there was a positive change in accounting
practice in commercial banks of Nepal.
Accounting system and internal control tools
established before ten years have still played
a vital role in recording of economic
transactions and internal control over error
and misappropriation. Even though
dependency of commercial banks on
computerized accounting system has highly
increased, facilities for customer such as the
internet and electronic banking, mobile
banking, home banking, and tele-banking are
still in the infancy stage in Nepal due to
security concern and lack of cyber law.
87.5% commercial banks in Nepal have
adequate internal control system over errors
and misappropriation and this percentage
before a decade was only 77.78. 4.17%
commercial banks still do not present their
internal audit regularly. At present, 95.83%
commercial banks in Nepal fully implement
the directives imparted by central bank and
these directives have growing positive impact
on public accountability, confidentiality
between customer and bank, credit
worthiness and qualitative characteristics of
accounting information but impact of central
bank’s directives on profitability and
reliability of accounting information is still
ineffectual. Despite the positive changes in
accounting practice over the last decade,
there is still need of maintaining financial
discipline through adequate transparency,
competition and initiation of new step
required to minimize the occurrence of error
and irregularities in the accounting system of
commercial banks in Nepal.
Keywords: Computerized Accounting,
directives, accounting tools, financial
information, irregularities, internal control.
1. Introduction:
An accounting practice is a regular
implementation of accounting policies on the
ground of which day-to-day financial
activities of a business entity are gathered and
recorded. In other word, it is the enforcement
and practical application of accounting and
auditing guidelines and policies in order to
evaluate and monitor firm’s regular
economic activities. In fact, accounting is the
systematic development and analysis of
information about the economic affairs of an
Page 2 of 11
Journal for Studies in Management and Planning
Available at http://edupediapublications.org/journals/index.php/JSMaP/
e-ISSN: 2395-0463
Volume 02 Issue 6
June 2016
Available online: http://edupediapublications.org/journals/index.php/JSMaP/ P a g e | 98
organization. This information may be used
in a number of ways; by the organization
managers to help them in plan and control or
organization’s operation; by owners and
legislative or regularity bodies to help them
appraise organization performance and make
decision as to its future; by owners, lenders,
suppliers, employees and other to help them
decide how much time or money to devote to
the organization; by governmental bodies to
determine how much tax the organization
must pay; and occasionally by the customer
to determine the price to be paid when
contracts calls for cost-based payments
(Encyclopedia Britannica, 2002). To take
rational decisions under uncertainty, correct
and reliable accounting information is
required. Even though, accounting
information plays a vital role in all types of
organizations during the time of planning,
policy making and controlling, this research
fully deals with the accounting practice of
commercial banks in Nepal. A decade ago
researcher has conducted a study related to
commercial banks in Nepal in order to
understand the recording practices,
difference in accounting practice and system
among commercial banks, best appropriate
system using by banks, their level of trust on
emerging technology such as computerized
accounting, Automated Teller Machine,
Debit Card, Credit Card, Mobile Banking,
Internet Banking and the like, and also
collected various information required to
improve and strengthen the accounting
practice in commercial banks. Within these
ten years there is a vast change in technology,
unskilled human resources in banking sector
are replaced by the skill manpower, lot of
changes has been made by the Central Bank
(Nepal Rastra Bank) in their directives and
policies, lot of finance and development
banks merge with each other and form a
single entity etc. Hence, it is very essential to
conduct same research again to measure the
reforms in accounting practice as
consequences of change in information
technology, qualification and skill of
manpower, change in policies and directives
of Nepal Rastra Bank and so on. We must
know that the operating system and
accounting and reporting requirements of
banks are different from those of other
commercial enterprises (International
Accounting Standards Committee, 1993).
The business activities results in certain
unique accounting matters which have lead to
the development of a body of accounting
practice that may differ from regulatory
reporting system (Carmichael & Rosenfield,
2003). When this research was conducted
before ten years i.e. in year 2007 there were
25 commercial banks in Nepal but now
number of commercial banks has increased to
33.
Commercial banks should be responsible to
change the economic and financial activities
of the fiscal policy of Government.
Therefore, accounting disclosure system
should be transparent and presented in
understandable form. It must meet the
statutory requirement of government and
provides accurate information to its users
such as employees, lenders, suppliers, trade
creditors, governments, customer, general
public and potential investors. Maintaining
public accountability, confidentiality
between banks and the customers’ reputation,
credit worthiness in the presentation of
published accounts and qualitative
characteristics of accounting information
presented in financial statement all depend on
better accounting practice.
A sound banking system is important because
it plays key roles in the economy,
intermediation, maturity transformation,
facilitating payment flows, credit allocation
and maintaining financial discipline among
Page 3 of 11
Journal for Studies in Management and Planning
Available at http://edupediapublications.org/journals/index.php/JSMaP/
e-ISSN: 2395-0463
Volume 02 Issue 6
June 2016
Available online: http://edupediapublications.org/journals/index.php/JSMaP/ P a g e | 99
borrowers. The bank provides important
positive externalities as gathers of saving, the
allocators of resources and providers of
liquidity and payment services. In transition
and developing economics with less well
developed financial market, banks typically
are the only institutions producing the
information necessary for the intermediation,
providing the portfolio diversification
required for maturity transformation and risk
reduction and helping monitor corporate
governance. Even in economics with highly
developed financial markets; banks remain at
the center of economic and financial activity
and stand apart from other institution as the
primary provider of payment services and as
a fulcrum for monetary policy
implementation (IMF, 1996). Hence there is
considerable and widespread interest in the
well being of banks, and in particular their
solvency and the relative degree of risk that
attaches to the different types of their
business. Accounting practices in
commercial banks of Nepal are largely
governed by the directives issued by the
NRB, Commercial Bank 1974 and 1984,
Rastra Bank Act 1955, Foreign Exchange
Regulation Act, and Companies Act 1997.
Commercial banks are established under
Company Act as a company with limited
liabilities on the recommendation of the
Nepal Rastra Bank. According to
Commercial Bank Act, NRB has possessed
several powers such as power of inspection
and to issue necessary directives to the
commercial banks. Hence, in the context of
Nepal, various operations and practices of
commercial banks depend upon the
legislation and supervision of NRB.
A sound, profitable and constructive banking
system must be based upon the effective
accounting practice, proper procedures, and
operation and it may be differ from
regulatory reporting. The banking transaction
includes various risks, so banks need well
developed accounting control system and
their numerous interlocked and
interdependent transaction, volume and
velocity of transactions, risk and complexity
of transactions makes banking accounting
practice differ from other companies. Thus,
there is a crucial need of discovering the
actual accounting practice in commercial
bank of Nepal. There is still need of
maintaining financial discipline through
adequate transparency and competition. It is
said that balance sheet shows the situation of
commercial banks, but actual situation
cannot be seen from it. The wide recognition
given this principle can best be illustrated by
pointing to the considerable degree of
external control exercised over banking by
regulatory authorities created by the
government. Also widely recognized is that
external control is not sufficient in them. Safe
and sound bank accounting system must be
effectively controlled and policed from
within (Wallgren, 1975) Seen in this light, the
comparative study of change in accounting
practice in commercial banks assumes
special importance with today’s increasing
liberalization and expansion of commercial
banking business. It has become increasingly
important for general people being aware of
change in accounting practice of commercial
banks, for the commercial banks to know
about how they are doing and strengthening
the accounting practice to achieve the sound
accounting information for them and for all.
For this reason, this research will measure the
change in accounting practice of commercial
bank within last ten years. This research also
gauges the impact of skill human resources,
new technology and new directives and
policies of Nepal Rastra Bank (NRB, Central
Bank of Nepal) on accounting practices in
commercial banks of Nepal within the last
decade.
