Seven CA firms face ICAN wrath

KATHMANDU, July 11: Institute of Chartered Accountants of Nepal (ICAN) - the umbrella organization of chartered accountants (CAs) -- has taken action against seven chartered accountant firms on the charge of flouting auditing standards while auditing financial statements of big saving and credit cooperatives (SCCs) in the capital.

The Department of Cooperatives (DoC) - the cooperatives regulator - about a year ago had registered complaints at the ICAN, seeking action against eight CA firms for preparing positive financial reports of 10 big SCCs that were later found violating cooperatives norms and standards.


“We have warned the concerned CA firms as per the recommendation of our disciplinary committee and directed them to stick to auditing standards now onwards,” a source at ICAN - a quasi-judicial body -- told Republica on Sunday.

DoC had filed complaint against the eight CA firms for going against the norms and spirit of the 48-point standard issued for auditing financial statements of cooperatives.

ICAN issued warning to Suresh Khakurel of Khakurel & Company, Mahesworendra Bahadur Shrestha of MB Shrestha & Company, Saroj Guragain of S Guragain & Company, Raj Kumar Rai of RK Rai & Company, Pyushananda of P Ananda & Company, Rajesh Prasad Giri of Rajesh & Company and Pramod Kumar Swarnakar of Dewakivijaya & Company. It, however, did not take any action against Durga Narayan Shrestha, a Class ´B´ auditor.

These accountancy firms had audited the accounts of Guna Saving and Credit Cooperatives, Oriental Saving and Credit Cooperatives, Nawa Kantipur Saving and Credit Cooperatives, Gorkha Saving and Credit Cooperatives, Kantipur Saving and Credit Cooperatives, Lali Gurans Saving and Credit Cooperatives, Sumeru Saving and Credit Cooperatives and Milan Multipurpose Saving and Credit Cooperatives.

Sources said the accountancy firms had prepared positive financial statements, including credit flow and credit system, of the aforesaid cooperatives, veiling their weaknesses.

A government study conducted last year had also found big cooperatives, including those audited by the aforesaid CA firms, violating the cooperative standards.

The study had found that SCCs were not maintaining transparency in financial transaction. It had also found that most of the SCCs were controlled by family members, which is against the Cooperatives Act. Those SCCs were also found conducting huge transactions like commercial banks and issuing loans only to their members.

Some of them were also found to have transferred the collateral against loans to the accounts of directors, going against the Act that requires them deposit collaterals in the lending institutions´ accounts.

Similarly, the study had also found that the SCCs were issuing loans without provisioning risk against loan, not following specific criteria for issuing loan and lacking proper portfolio management. They were also failing to conduct annual general meetings on time.

The DoC has prepared a Standard for Registration, Operation, Auditing, Monitoring and Regulation of Cooperatives 2011 to end growing anomalies in SCCs.