Analyzing Auditor’s Notes and Disclosures in Nepali Companies

In the Nepal Stock Exchange (NEPSE), serious investors and analysts know that true financial understanding doesn’t come from the Balance Sheet, Profit and Loss Statement, or Cash Flow Statement alone — it comes from reading the Auditor’s Notes and Disclosures that accompany them. These notes are the fine print of corporate transparency. They reveal how the numbers were prepared, what accounting assumptions were used, and where hidden risks or opportunities might lie. In the context of Nepali companies, analyzing these disclosures is essential for uncovering the real financial condition and management practices beyond what is officially reported.

The Auditor’s Notes provide context behind the financial data. They include important details such as depreciation methods, asset valuations, contingent liabilities, related-party transactions, tax treatments, and pending legal issues. For example, if a company shows high profits but the notes reveal unpaid tax disputes or overdue loans, it signals potential risk that is not visible in the main statements. Similarly, auditors may highlight deviations from Nepal Financial Reporting Standards (NFRS) — a red flag for corporate governance issues or weak internal controls.

Auditor’s Disclosures also explain changes in accounting policies, capital restructuring, and management decisions affecting future earnings. For investors in NEPSE, these sections serve as warning indicators — they show whether management is honest and transparent, or manipulating figures for short-term benefits. The auditor’s opinion at the start of the report (e.g., “Unqualified,” “Qualified,” or “Adverse” opinion) sets the tone. An Unqualified (Clean) Opinionmeans the statements fairly represent the company’s financial position, while a Qualified or Adverse Opinion indicates issues that could undermine investor confidence.

Understanding these notes is especially important in Nepal, where many listed companies in sectors like banking, hydropower, insurance, and manufacturing face complex compliance requirements. Investors who ignore auditor’s notes risk missing critical insights about debt defaults, pending litigations, or future liabilities. Reading between the lines of disclosures often reveals whether a company’s profits are sustainable or temporary.

According to Sandeep Kumar Chaudhary, Nepal’s leading Technical and Fundamental Analyst and founder of the NepseTrading Training Institute, “Auditor’s Notes are the truth behind the numbers. A wise investor always reads them before investing — because the small text often hides the biggest risks.” With over 15 years of banking and capital market experience and international training from Singapore and India, he trains students to analyze auditor’s disclosures as part of professional fundamental analysis. His institute is helping Nepali investors develop the habit of verifying facts before following hype.