Ask a business owner in Nepal what an accountant does with their year-end financial statements, and most will say one word: audit. In reality, "audit" is only one of three distinct types of engagement a chartered accountant can perform on a set of financial statements, and confusing them can lead to real problems — a lender who receives a compilation when they expected a review, or a company that pays for a full audit when a lighter-touch review would have served its purpose just as well. Understanding the difference between an audit, review, and compilation in Nepal is not just an academic distinction; it directly affects what a report can be relied upon for, what it costs, and how long it takes.
Assurance, in other words, is not one-size-fits-all. The Institute of Chartered Accountants of Nepal (ICAN), through its Auditing Standards Board, has formally adopted three separate families of standards to govern these three engagement types, each producing a report with a fundamentally different level of assurance behind it. This guide walks through what each one actually means, when Nepali law requires which one, and how a business should think about choosing between them.
Full Audit: Reasonable Assurance, Required for Statutory Compliance
A full audit is governed in Nepal by the Nepal Standards on Auditing (NSA 100–999), which are based on the International Standards on Auditing issued by the IAASB and adopted locally by ICAN's Auditing Standards Board. An audit is designed to provide reasonable assurance — a high, though not absolute, level of confidence — that the financial statements as a whole are free from material misstatement, whether caused by fraud or error. To reach that level of confidence, the auditor performs substantive testing of transactions and balances, obtains external confirmations from banks and third parties, physically verifies assets and inventory where relevant, and evaluates the entity's internal controls. The result is a formal opinion, positively worded ("in our opinion, the financial statements present fairly...") rather than merely negatively worded. In Nepal, this is the only engagement type that satisfies the mandatory statutory audit requirement under the Companies Act, 2063, and it is what regulators, tax authorities, and the Office of the Company Registrar expect to see filed every year.
Review Engagement: Limited Assurance for Interim or Lender Needs
A review engagement sits a step below a full audit and is governed in Nepal by the Nepal Standards on Review Engagements — NSRE 2400 and NSRE 2410. NSRE 2400 applies to reviews of historical financial statements generally, while NSRE 2410 specifically covers the review of interim financial information performed by the entity's own independent auditor. A review provides limited assurance — a moderate level of confidence, expressed negatively rather than positively. Instead of stating that the financial statements "present fairly," a review report states that "nothing has come to our attention that causes us to believe the financial statements are not prepared, in all material respects," in accordance with the applicable framework. The procedures behind this are lighter than a full audit: primarily inquiry of management and analytical procedures, rather than extensive substantive testing or external confirmation. In practice, Nepali businesses use review engagements for interim or quarterly reporting between annual audits, or when a bank or lender requests a level of comfort on financial statements that falls short of requiring a full statutory audit, typically for a smaller loan facility or a shorter reporting period.
Compilation: No Assurance, Just Presenting Management's Figures
A compilation engagement, governed by the Nepal Standards on Related Services — NSRS 4410, is fundamentally different in character from both an audit and a review. It provides no assurance at all. The accountant applies accounting and financial reporting expertise to help management assemble financial information into a proper structure, but does not test, verify, or express any opinion on whether that information is accurate or complete. The engagement report explicitly states that no audit or review has been performed and that no assurance is expressed on the figures presented. This is essentially a professional presentation service — useful when a business needs financial statements formatted to a recognisable standard for internal management use, for a group consolidation, or for a party who has explicitly agreed that management's own figures, professionally presented, are sufficient for their purposes.
Which Engagement Type Nepali Regulators Actually Require
For most Nepali entities, the regulatory answer is straightforward: the Companies Act, 2063 requires every registered company to undergo a full statutory audit every fiscal year, with no exemption based on turnover, size, or activity level. The Income Tax Act, 2058 similarly expects audited financial statements to accompany income tax filings above certain thresholds. Neither a review nor a compilation satisfies these statutory obligations — they exist as separate, additional engagement types for situations the statutory audit does not cover, such as more frequent interim reporting or informal internal reporting needs. Banks and financial institutions regulated under BAFIA face the same requirement for a full audit, layered with additional NRB-specific reporting obligations. In short: if a Nepali business is asking "what am I legally required to have done to my financial statements once a year," the answer is almost always a full audit, not a review or compilation.
When a Business Might Voluntarily Choose a Review Over a Full Audit
Outside the statutory annual audit, businesses do have genuine choices. A company preparing quarterly management accounts for its board or investors, for instance, may find a full audit excessive for that purpose and instead commission a review, which delivers meaningful assurance at a fraction of the time and cost. Similarly, a lender assessing a modest working-capital facility may be satisfied with a review of the borrower's interim financials rather than insisting on audited figures, particularly where the borrower already undergoes a full annual statutory audit and the review simply bridges the gap between annual audit cycles. Startups and small businesses not yet required to meet more demanding lender or investor expectations sometimes use a compilation purely to get their internal books into a presentable, standardised format before deciding whether a review or audit is the right next step as they grow.
Cost and Time Differences Between the Three
The three engagement types differ meaningfully in both cost and time, roughly in proportion to the depth of work involved. A full audit is the most expensive and time-consuming, since it requires extensive substantive testing, external confirmations, and detailed documentation to support a reasonable-assurance opinion; depending on company size, this can take anywhere from a few weeks to several months of fieldwork. A review typically costs somewhere in the range of 40 to 60 percent of a comparable audit fee, reflecting its narrower scope of inquiry and analytical procedures rather than full substantive testing, and generally takes a fraction of the time to complete. A compilation is the least expensive and fastest of the three, since it involves no testing or verification at all — the accountant's work is limited to structuring and presenting figures management has already prepared. Businesses should weigh these cost and time differences against what the report will actually be used for, since paying for audit-level assurance when a review would suffice is simply money spent on more assurance than the situation requires.
Conclusion
Not every financial reporting need calls for the same depth of scrutiny, and Nepal's professional standards recognise that explicitly through three distinct engagement types. A full audit remains mandatory for statutory compliance and delivers the highest level of assurance; a review offers a faster, lower-cost middle ground for interim reporting and certain lender needs; and a compilation simply presents management's own figures without any assurance at all. Knowing which one you actually need, rather than defaulting to the most expensive option out of habit, can save a business meaningful time and money without compromising on what a given report needs to accomplish.
Not sure which engagement type fits your company's current situation? Our team at Bandhu Fintech can help you scope the right level of assurance for your needs and budget.
Disclaimer: This article is for general information only and does not constitute legal or tax advice. Please consult an ICAN-registered Chartered Accountant for guidance specific to your company's circumstances.
Discussion