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An audit report is one of the most important compliance documents for businesses operating in Nepal. Whether you run a private limited company, a public company, an NGO, or a cooperative, Nepal's laws require periodic financial audits conducted by a registered chartered accountant (CA). The Companies Act 2063 (2006), Income Tax Act 2058 (2002), and sector-specific laws mandate that businesses above certain thresholds submit audited financial statements to the Inland Revenue Department (IRD), Office of the Company Registrar (OCR), and other regulatory bodies. This guide explains when an audit report is required, the types of audits in Nepal, the step-by-step process, and how to stay compliant in 2026.
Audit report in Nepal — All registered companies (private and public) must submit an annual audit report prepared by a licensed chartered accountant under the Companies Act 2063. Businesses with annual turnover exceeding NPR 50 lakh must file audited financial statements with the IRD. The audit covers financial statements, tax compliance, and internal controls. The fiscal year runs from Shrawan 1 to Ashad end (mid-July to mid-July). Annual filing deadline: within 3 months of fiscal year end (Ashoj/October). Penalties apply for non-compliance.
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What Is an Audit Report?
An audit report is a formal opinion issued by an independent chartered accountant (CA) or audit firm after examining the financial records, transactions, and statements of an organisation. It provides assurance to stakeholders — including shareholders, regulators, tax authorities, and creditors — that the financial statements present a true and fair view of the organisation's financial position.
In Nepal, an audit report typically includes:
- Auditor's opinion — unqualified, qualified, adverse, or disclaimer
- Balance sheet (statement of financial position)
- Income statement (profit and loss account)
- Cash flow statement
- Notes to financial statements
- Auditor's observations and recommendations
The audit report must comply with Nepal Standards on Auditing (NSA) issued by the Institute of Chartered Accountants of Nepal (ICAN).
Who Must Have Accounts Audited in Nepal?
Multiple laws require mandatory auditing for different types of entities. Below is a comprehensive overview of who needs an audit report in Nepal.
Entities Requiring Mandatory Audit
| Entity Type | Governing Law | Audit Requirement |
|---|---|---|
| Private limited company | Companies Act 2063, Section 110 | Mandatory annual audit |
| Public limited company | Companies Act 2063, Section 110 | Mandatory annual audit |
| Business with turnover > NPR 50 lakh | Income Tax Act 2058, Section 96 | Must file audited returns with IRD |
| NGOs | Association Registration Act 2034 + SWC Act | Mandatory audit for SWC-registered NGOs |
| INGOs | SWC Act + agreement terms | Mandatory annual audit |
| Cooperatives | Cooperative Act 2074 | Annual audit by cooperative auditor |
| Government entities | Audit Act 2048 | Audited by Office of the Auditor General |
| Banks and financial institutions | Banks & Financial Institutions Act 2073 | Mandatory audit + NRB compliance |
| Insurance companies | Insurance Act 2079 | Mandatory audit + Beema Samiti compliance |
| Sole proprietorship (turnover > NPR 50 lakh) | Income Tax Act 2058 | Must file audited income tax return |
| Partnership firm (turnover > NPR 50 lakh) | Income Tax Act 2058 | Must file audited income tax return |
Turnover Threshold for Tax Audit
Under the Income Tax Act 2058, any business (whether a company, partnership, or sole proprietorship) with annual turnover exceeding NPR 50 lakh (5 million) must submit audited financial statements along with the income tax return. Businesses below this threshold can self-assess but are still subject to IRD scrutiny.
Types of Audits in Nepal
Nepal recognises several types of audits depending on the purpose, scope, and entity involved.
| Audit Type | Purpose | Conducted By | Applicable To |
|---|---|---|---|
| Statutory audit | Legal compliance — annual financial review | Licensed CA / audit firm | All companies, banks, insurance |
| Tax audit | Verify tax compliance before IRD filing | Licensed CA | Businesses with turnover > NPR 50 lakh |
| Internal audit | Evaluate internal controls, fraud prevention | Internal auditor / CA firm | Large companies, banks, public entities |
| Government audit | Accountability of public funds | Office of the Auditor General (OAG) | Government bodies, public corporations |
| Forensic audit | Investigate fraud, financial crimes | Specialised CA / investigation agency | As needed — court orders, complaints |
| Management audit | Assess organisational efficiency | External consultants / CA firms | Large organisations, donor-funded projects |
| NGO/INGO audit | Donor compliance + SWC filing | Licensed CA | SWC-registered NGOs and INGOs |
| Cooperative audit | Annual financial review | Cooperative Department auditor or licensed CA | Registered cooperatives |
| Special audit | Specific investigation ordered by board/regulator | Appointed CA / firm | Any entity — as directed |
Statutory Audit vs Tax Audit
Many business owners confuse statutory audit and tax audit. They serve different purposes:
- Statutory audit — Required by the Companies Act 2063 for all registered companies. Focuses on whether financial statements give a true and fair view. Filed with the OCR.
- Tax audit — Required by the Income Tax Act 2058 for businesses above the turnover threshold. Focuses on tax compliance, deductions, and taxable income calculation. Filed with the IRD.
For most companies, a single audit engagement covers both statutory and tax requirements, but the reports may be presented separately.
How to Get an Audit Done in Nepal — Step-by-Step Process
Getting your company audited follows a standard process. Here is the step-by-step procedure.
Step 1: Appoint an Auditor
Under Section 111 of the Companies Act 2063, the Annual General Meeting (AGM) of the company must appoint an auditor for the upcoming fiscal year. The auditor must be a licensed chartered accountant or audit firm registered with ICAN. For private companies with few shareholders, the shareholders' resolution appoints the auditor.
Step 2: Prepare Financial Records
Before the audit begins, ensure all financial records are up to date:
- Books of accounts (journal, ledger, cash book)
- Bank statements and reconciliation
- Purchase and sales invoices (with VAT bills if applicable)
- Payroll records and TDS deduction details
- Fixed asset register
- Loan agreements and interest schedules
- Tax payment vouchers (advance tax, VAT, TDS)
Step 3: Audit Fieldwork
The auditor or audit team visits the company (or reviews records remotely for smaller entities) to:
- Verify transactions against source documents
- Test internal controls
- Confirm bank balances and third-party balances
- Review compliance with applicable laws and standards
- Assess going concern assumptions
Step 4: Draft Audit Report
After fieldwork, the auditor prepares the draft audit report including the auditor's opinion, financial statements, and management letter (if applicable). The management letter highlights internal control weaknesses and recommendations.
Step 5: Final Audit Report and Signing
The final audit report is signed by the licensed CA (with ICAN membership number) and presented to the company's board of directors. The report is then submitted to the AGM for approval.
Step 6: Regulatory Filing
After AGM approval, the audited financial statements and audit report are filed with:
| Filing Authority | What to File | Deadline |
|---|---|---|
| Office of the Company Registrar (OCR) | Annual return + audited financial statements | Within 6 months of fiscal year end |
| Inland Revenue Department (IRD) | Income tax return + audited statements | Within 3 months of fiscal year end (Ashoj/October) |
| Nepal Rastra Bank (for banks/BFIs) | Audited financials + NRB compliance report | As per NRB circular |
| Social Welfare Council (NGOs/INGOs) | Audited financials + project reports | Within 6 months of fiscal year end |
| Department of Cooperatives | Audited financials + annual report | Within 3 months of fiscal year end |
Qualified Chartered Accountants in Nepal
Only a chartered accountant (CA) holding a valid Certificate of Practice (COP) issued by ICAN can conduct statutory and tax audits in Nepal. Audit firms must also be registered with ICAN.
ICAN — Institute of Chartered Accountants of Nepal
ICAN is the sole body authorised to license CAs in Nepal under the Nepal Chartered Accountants Act 2053 (1997). Key details:
| Detail | Information |
|---|---|
| Full name | Institute of Chartered Accountants of Nepal |
| Established | 2053 BS (1997 AD) |
| Governing law | Nepal Chartered Accountants Act 2053 |
| Total CAs (approx) | 2,500+ licensed members |
| Website | ican.org.np |
| Office | Satdobato, Lalitpur |
Who Cannot Be an Auditor?
Under Section 112 of the Companies Act 2063, the following persons are disqualified from being appointed as auditor of a company:
- A director or officer of the company
- A shareholder of the company
- A relative (as defined by law) of a director or officer
- A person who has any business relationship or pecuniary interest with the company
- A person whose COP has been suspended or cancelled by ICAN
Audit Report for Tax Compliance
The Income Tax Act 2058 and Income Tax Rules 2059 require businesses to file income tax returns with audited financial statements if their turnover exceeds NPR 50 lakh. The tax audit report must include:
- Computation of taxable income
- Details of TDS deducted and deposited
- VAT reconciliation (if registered under VAT)
- Depreciation calculation as per tax rules
- Disallowed expenses and adjustments
- Advance tax payment details
- Capital gain tax computation (if applicable)
Penalties for Not Filing Audited Returns
| Offence | Penalty | Legal Basis |
|---|---|---|
| Late filing of tax return | 0.1% per month of assessable tax (up to the tax amount) | Income Tax Act 2058, Section 117 |
| Not maintaining books of accounts | NPR 5,000 to NPR 25,000 per instance | Income Tax Act 2058, Section 120 |
| Not filing annual return with OCR | NPR 500 per day of delay | Companies Act 2063, Section 159 |
| False or misleading audit report | CA licence suspension + penalties | Nepal Chartered Accountants Act 2053 |
| Tax evasion (identified in audit) | 100% of evaded tax as penalty + interest | Income Tax Act 2058, Section 119 |
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Audit for NGOs and INGOs
NGOs and INGOs registered with the Social Welfare Council (SWC) must submit audited financial statements annually. The audit requirements for NGOs in Nepal include:
- Annual audit by a licensed CA
- Project-wise financial reports for each donor-funded project
- SWC annual report with audited financials
- Donor compliance audit as required by specific donor agreements
- Tax compliance — NGOs must file income tax returns even if exempt (to claim exemption)
Key NGO Audit Filing Requirements
| Filing | Authority | Frequency |
|---|---|---|
| Audited financial statement | Social Welfare Council (SWC) | Annual |
| DAO annual renewal + audit | District Administration Office | Annual |
| Income tax return | Inland Revenue Department | Annual |
| Donor-specific audit | Respective donor agency | As per agreement |
Audit Report Timeline and Fiscal Year
Nepal follows the Bikram Sambat (BS) fiscal year, which runs from 1 Shrawan to 31 Ashad (approximately mid-July to mid-July in the Gregorian calendar). All audit deadlines are calculated from the end of the fiscal year.
| Event | Deadline | Notes |
|---|---|---|
| Fiscal year end | 31 Ashad (mid-July) | FY 2082/83 ends Ashad 2083 |
| Income tax return + audit | Ashoj end (3 months from FY end) | Approximately October |
| OCR annual return | Within 6 months of FY end | Approximately January |
| AGM for public companies | Within 6 months of FY end | Required before OCR filing |
| SWC filing for NGOs | Within 6 months of FY end | With audited financials |
Cost of Audit in Nepal
Audit fees in Nepal vary based on company size, transaction volume, and complexity. ICAN prescribes minimum audit fee guidelines. Typical ranges are:
| Entity Type | Approximate Audit Fee Range |
|---|---|
| Small private company (low turnover) | NPR 15,000 – NPR 50,000 |
| Medium private company | NPR 50,000 – NPR 2,00,000 |
| Large private / public company | NPR 2,00,000 – NPR 10,00,000+ |
| Banks and BFIs | NPR 5,00,000 – NPR 50,00,000+ |
| NGO / INGO | NPR 25,000 – NPR 3,00,000 (depends on project size) |
| Cooperative | NPR 10,000 – NPR 50,000 |
Note: The above are approximate ranges. Actual fees depend on the CA firm, scope of work, and entity complexity. ICAN minimum fee schedule must be followed.
Common Audit Issues and How to Avoid Them
Many businesses in Nepal face audit complications due to poor bookkeeping. Here are the most common issues and how to prevent them:
Record-Keeping Problems
- Missing invoices — Keep all purchase and sales invoices (paper + digital copies)
- Cash transactions without vouchers — Always issue payment vouchers for cash transactions
- No bank reconciliation — Reconcile bank statements monthly
- Mixed personal and business expenses — Maintain separate accounts for business
Tax Compliance Issues
- TDS not deducted or late deposit — Deduct TDS at source and deposit within 25 days of the following month
- VAT mismatch — Ensure VAT purchase and sales records match IRD portal data
- Under-reporting income — IRD cross-checks with VAT returns, bank transactions, and third-party data
- Depreciation errors — Use rates prescribed by the Income Tax Act
Audit Report and Company Registration
When you register a company in Nepal, audit compliance becomes mandatory from the first fiscal year of operation. Even if the company had minimal or zero transactions, the annual return filed with the OCR must include audited financial statements. New companies should:
- Appoint an auditor at the first AGM (or within 30 days of incorporation for the first year)
- Maintain books of accounts from day one
- File the first annual return within 6 months of the first fiscal year end
- Obtain a PAN card and file income tax returns even if zero income
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Nepal Auditing Standards (NSA)
All audits in Nepal must follow Nepal Standards on Auditing (NSA) issued by ICAN. These are largely based on International Standards on Auditing (ISA) issued by IFAC, adapted for Nepal's regulatory environment. Key NSA standards include:
- NSA 200 — Overall objectives of the independent auditor
- NSA 700 — Forming an opinion and reporting on financial statements
- NSA 705 — Modifications to the opinion in the independent auditor's report
- NSA 240 — The auditor's responsibilities relating to fraud
- NSA 570 — Going concern
Financial statements must be prepared under Nepal Financial Reporting Standards (NFRS) for public interest entities or NFRS for SMEs for smaller entities.
Conclusion
An audit report is a legal requirement for most businesses in Nepal. Whether you operate a private limited company, a sole proprietorship with turnover above NPR 50 lakh, an NGO, or a cooperative, timely and accurate auditing ensures tax compliance, regulatory standing, and stakeholder confidence. Appoint a qualified CA, maintain proper books of accounts throughout the year, and file on time to avoid penalties. For businesses navigating court marriage in Nepal alongside business operations, our legal team can assist with both corporate compliance and personal legal matters.
Need help with audit compliance, company registration, or tax filing? Our experienced legal team is here to help.
Frequently Asked Questions
An audit report is a formal opinion issued by a licensed chartered accountant after examining a company's financial records. It confirms whether financial statements present a true and fair view of the organisation's financial position, as required by the Companies Act 2063 and Income Tax Act 2058.
All registered companies (private and public) must get an annual statutory audit under the Companies Act 2063. Additionally, any business — including sole proprietorships and partnerships — with annual turnover exceeding NPR 50 lakh must submit audited financial statements to the IRD.
Businesses with annual turnover exceeding NPR 50 lakh (5 million) must file audited financial statements with the Inland Revenue Department. This applies to companies, partnerships, and sole proprietorships alike under the Income Tax Act 2058, Section 96.
Only a chartered accountant (CA) holding a valid Certificate of Practice (COP) issued by the Institute of Chartered Accountants of Nepal (ICAN) can conduct statutory and tax audits. Audit firms must also be registered with ICAN.
Statutory audit is required by the Companies Act 2063 for all registered companies and focuses on fair presentation of financial statements. Tax audit is required by the Income Tax Act 2058 for businesses above NPR 50 lakh turnover and focuses on tax compliance and taxable income calculation.
The income tax return with audited financials must be filed within 3 months of the fiscal year end (by Ashoj end, approximately October). The annual return to the Office of the Company Registrar must be filed within 6 months of fiscal year end.
Nepal's fiscal year runs from 1 Shrawan to 31 Ashad in the Bikram Sambat calendar, which corresponds approximately to mid-July to mid-July in the Gregorian calendar. All audit and tax filing deadlines are calculated from this fiscal year end.
Late income tax filing attracts 0.1% per month of assessable tax. Not filing annual returns with OCR incurs NPR 500 per day of delay. Not maintaining proper books of accounts can attract NPR 5,000 to NPR 25,000 penalty. Tax evasion identified during audit carries 100% penalty.
Yes. All NGOs registered with the Social Welfare Council (SWC) must submit audited financial statements annually. They must also file donor-specific audit reports as required by their funding agreements and income tax returns with the IRD.
Audit fees range from NPR 15,000 for small private companies to NPR 10 lakh or more for large companies. Banks and BFIs may pay NPR 5 lakh to NPR 50 lakh. NGO audits typically cost NPR 25,000 to NPR 3 lakh depending on project size and complexity.
No. Under Section 112 of the Companies Act 2063, a director, officer, shareholder, or their relative cannot be appointed as auditor of the company. The auditor must be independent with no business relationship or pecuniary interest in the company.
Nepal follows Nepal Standards on Auditing (NSA) issued by ICAN. These are based on International Standards on Auditing (ISA) adapted for Nepal. Financial statements must follow Nepal Financial Reporting Standards (NFRS) for public interest entities or NFRS for SMEs.
Only if your annual turnover exceeds NPR 50 lakh. Below this threshold, sole proprietors can self-assess their income tax returns. However, maintaining proper books of accounts is always recommended and may be required by the IRD during tax assessment.
The auditor is appointed by shareholders at the Annual General Meeting (AGM) under Section 111 of the Companies Act 2063. For the first year after incorporation, the board of directors can appoint the auditor within 30 days. The appointed CA must hold a valid COP from ICAN.
Auditors typically require books of accounts, bank statements, purchase and sales invoices, payroll records, TDS details, fixed asset register, loan agreements, tax payment vouchers, board meeting minutes, and previous year's audit report. Complete documentation speeds up the audit process.
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