1. European Journal of Developing Country Studies, Vol.1 2006
ISSN(paper)2668-3385 ISSN(online)2668-3687
www.BellPress.org
A regulatory review on statutory requirement for the Financial
Reporting and role of Financial Reporting Act Bangladesh
perspective
Mohammad Abdul Ohab Miah
FCA, CFO Capital Market Operation, IDLC Finance Limited
Abstract
The objectives of the proposed Financial Reporting Act are very fair and very necessary for
the establishment of financial discipline over public interested Companies including listed and
non listed Companies. I believe there are very few professional accountants who will disagree
with above. I would like to point out one thing at the beginning of my writing that is “still
following BAS and BFRS in preparation of Financial Statements and BSA in performing
audit by a chartered Accountant are not compulsory under Companies Act”. These are being
followed by chartered Accountants from their own initiatives from the Institutes of Chartered
Accountants of Bangladesh as professional responsibility.
The only issue is how we will achieve the objectives. Generally it is the Government who is
responsible to protect public interest and ensuring financial discipline over all institutes of
public interest including private companies, public companies, statutory corporation, NGOs
and other business organizations. Government itself is nothing but an organization and
government protect and ensure public interest thorough various institution and branches of
Government organization like Securities and Exchange Commission, Bangladesh Bank,
National Board of Revenue, Registrar of Joint Stock Companies and Firms including
Parliament, Judicial bodies and executives bodies etc. Government of Bangladesh has three
existing organizations for establishing financial discipline over public interested Companies
1. The Institutes of Chartered Accountants of Bangladesh (P.O. No. 2 of 1973- Bangladesh
Chartered Accountants Order) 2. Securities and Exchanges Commission and 3. The Institutes
of Cost and Management Accountants of Bangladesh (Order No. LIII of 1977- Cost and
Management Accountants Ordinance). Do we need really another organization to establish
and achieve our objectives on financial reporting? I have gone through the details of each
chapter of the proposed Financial Reporting Act 2010 and opine that Government of
Bangladesh does not require to establish separate department or body under financial
reporting Act 2010 as Financial Reporting Council rather we can strengthen the Institute of
Chartered Accounts of Bangladesh by incorporating more responsibility and accountability
under P.O. No. of 1973.We might know Securities and Exchange Commission working on
with some mandates as per Securities and Exchange Ordinance including with the objective
of protecting public interest on all listed and non listed ( to some extend) companies . We
might know that all listed companies are required to submit quarterly and yearly financial
statements to SEC and Stock Exchanges. We can make compliance of BAS and BFRS
compulsory in recording and preparation of financial statements of listed and non listed
companies by SEC laws as well as we can make auditors of the listed and non listed
companies binding that they have to follow the ISA or BSA compulsorily in performing their
audit and an investigation team of SEC may review the audit working paper of an auditor
where necessary. So we can work to build more capacity of SEC to establish Financial
discipline of all listed companies where more public interested are involved. We would not
like to avoid role of registrar of joint stock Companies to establish all the objectives of
proposed Financial Reporting Act 2010 and its role to establish financial discipline over all
registered Companies, Firms and Societies. We can make binding to follow Accounting or
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2. European Journal of Developing Country Studies, Vol.1 2006
ISSN(paper)2668-3385 ISSN(online)2668-3687
www.BellPress.org
Financial Reporting Standards adopted by the Institutes of Chartered Accountants of
Bangladesh compulsorily and simultaneously we can add one section in Companies Act that
Auditors have to follow the ICAB adopted Auditing standards in each of their relevant
assignment compulsorily. Instead of drafting new laws and forming another department of we
can empower SEC and Registrar of joint stack Companies to impose penalties for non
compliance with these provisions for both Auditors and Companies concerned.
Review of relevant papers on Financial Reporting requirements:
Financial Reporting Act has been enacted in NZ in different way and they formed
independent Financial Reporting Council and define the duties. SOA 2002 enacted in USA to
ensure more effective control over financial reporting and restrict the some scope of external
auditors. Financial Reporting Act has been enacted in Mauritius in different way and they
formed independent Financial Reporting Council and define the duties. UK has financial
reporting oversight Bodies which is active to monitor the functions of auditors and ensuring
public interest from the Public interest Companies. (P.O. No. 2 of 1973- Bangladesh
Chartered Accountants Order and Order No. LIII of 1977- Cost and Management
Accountants Ordinance
Points from the proposed Financial Reporting Act 2010:
Section 2:
2(4) Financial year, definition will contradict with the definition of Financial year in
Companies Act 1994 Section 183(4).
2(10) The definition of Audit firm should be more specific because without having formal
qualification on auditing only an audit function cannot established a non qualified auditor as
Audit firm ( internal audit/ management audit or other inspection or compliance audit)
The definition missing in the Act:
1. Professional Auditor: All Professional Accountants are not auditors/ Chartered
Accountant but a professional auditor is also accountant. We might know to be
certified auditors we need to complete specialized training at least for three years
under a licensed Chartered Accountant.
2. Definition of Chartered Accountants is missing.
3. Professional Audit service: need to incorporate definition professional audit services
in line with the Companies Act 1994, Income Tax Ordinance 1984 and Foreign
Exchange Regulation 1947.
4. The order of sequence of 2(19) should be in 2(5) then accordingly.
5. “Annual Report” the definition might be more elaborative and exhaustive here
Bangladesh bank existing guidelines/ BAS may be followed.
6. “Licensed Auditors” need more specific definition. All professional Accounting
Bodies ( both ICAB and ICMAB) cannot provide license for statutory audit. Only
ICAB is authorized to issue practicing license to its member on application for
statutory audit.
Section 3: This section empowered this law to override other laws except Comptoller and
Auditor General (additional Functions) Act, 1974. This is very weak law even weaker that
SEC Laws (2CC). I proposed to delete this clause or may replace as Follows:
“ If any thing is not defined or clarified in this laws definition and clarification of
Companies Act and SEC laws will be applicable”
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3. European Journal of Developing Country Studies, Vol.1 2006
ISSN(paper)2668-3385 ISSN(online)2668-3687
www.BellPress.org
Section 6: Formation of Council- We found that Governor of Bangladesh Bank will be the
Chairman of the Council by position and other three members would be Chairman SEC,
Chairman Insurance Regulatory Authority and Chairman, NBR. These Four honorable
positions are very important and they are busy with their regular activities of the concerned
organization. We don’t understand how they will concentrate on new job roles which are also
very public sensitive matters.
I don’t like to address details on the daily operation of the proposed Financial Reporting
Council and its other supporting units. I would like to put one comment that is “we have to
appoint more professional Accountants and professional auditors in the proposed Council”.
Section 13, 14 &15-The purposes and Function of the FRA 2010: ICAB and SEC have been
working on all general and specific objectives of the proposed Financial Reporting Act 2010
since long with some instance of success and failure. We might know the success and failure
of these two dignified institutes. You might agree with me that all departments of government
have some success and failure history.
There might be some limitation of these two institutes with respect to resources, capacities
etc. Without setting up Financial Reporting Council under FRA, If we can find out the
limitation and take necessary initiatives from the Government to eliminate the limitation, we
can make these grand institutes more functioning to ensure financial discipline over all
publicly interested organizations.
Section 24: There should have scope for another appeal before High Court against the order
of Appellate Tribunal otherwise this may jeopardize the rights of the aggrieved party.
Section 47: Gha: This will create critical contradiction with all existing laws. It is suggested
to delete and the Auditor should have same meaning save as existing in Companies Act 1994.
The proposed FRA is limiting its scope only with public interested companies. The financial
transparency and discipline are required very badly for all companies irrespective of listed and
non-listed. Due to deficiency of financial transparency and discipline over all business and
commerce organization, Bangladesh government is losing huge revenue both VAT and
Income Tax. I can tell you that if we can ensure effective transparency and discipline over all
Companies, revenue from business and tax would be more than double instantly.
The proposed Financial Reporting Act referred several times Rule of the Act on many
important issues, before finalizing the rule none can conclude on these important issues for
example definition of Public interest organization and condition for practicing license etc.
How can we eliminate the limitation of existing regulators and
build more capacity in existing regulators?
1. We need to amend the Companies Act 1994 and incorporate that;
a) following of BAS and BFRS are compulsory for the recording and
preparation Financial statements.
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4. European Journal of Developing Country Studies, Vol.1 2006
ISSN(paper)2668-3385 ISSN(online)2668-3687
www.BellPress.org
b) Insert a separate clause that Auditor shall perform their duty following BSA
and the report specifically on compliance of BAS and BFRS as separate
check list.
c) Insert separate clause on penalties of Auditors for non compliance with BSA
and for any negligence in performing their professional duties and incorrect
assertion on check list above (b).
d) The reporting organization’s Board of Directors, Managing Directors and
Chief Financial Officer will be penalized significantly in case of non
compliance with BAS and BFRS (Should not be Tk. 200 to 10000 like
existing Companies Act, these should be Tk. 500,000 to 2,000,000).
2. We need to amend P.O. No. 2 of 1973- Bangladesh Chartered Accountants
Order;
a) Make professional Chartered Accountant accountable for their professional
duties clearly in the Order.
b) Assess the necessity for the amendment of code of conduct/ ethics of
Chartered Accountants.
c) Imposition of some conditions to grant practicing license of Chartered
Accountants ie capacity of the proposed audit firm, office set up, staffing of
the firm, No. qualified accountants in the firm etc.
3. Enhance the capacity of ICAB:
a) Set up all departments as proposed under section 23 of FRA in ICAB and
establish separate reporting line directly to Ministry of Finance quarterly on
the function. Staff involved with these departments will have dual reporting
ICAB management and Ministry of Finance.
b) Include Bangladesh Bank Governor, SEC Chairman, Secretaries of Ministry
of Finance and Commerce and Industry, chairman Insurance Regulatory
Authority, Registrar RJSC and President FBCCI to the ICAB Council along
with elected council members from the ICAB.
c) Make separate pay scale for the ICAB staff to attract more competent and
qualified human resources.
d) Separate ICAB Council from their management functions. Leave ICAB
management influence free from the council. The ICAB Council will play as
supervisory and review role over management like a Company Board.
4. Strengthen the SEC like Bangladesh Bank:
a) Set up all departments as proposed under section 23 of FRA
b) Make it autonomous body like Bangladesh Bank
c) Build more capacity in SEC with respect to infrastructure and competent
staff
d) Make separate pay scale for the SEC staff to attract competent and qualified
human resources.
e) Set up a serrate department in SEC as Financial Statement and Audit
Review Department. It will review the published financial statements and
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5. European Journal of Developing Country Studies, Vol.1 2006
ISSN(paper)2668-3385 ISSN(online)2668-3687
www.BellPress.org
audit work of the auditor concerned. The department will ensure compliance
with section 12 of The Securities and Exchange Rule 1987.
5. Strengthen the RJSC:
a) Set up a serrate department in RJSC as Financial Statement and Audit
Review Department. It will review the audited financial statements and
audit work of the auditor concerned.
b) Ensure compliance by all registrant organization under RJSC on all of the
proposed in clause 1 above.
I am suggesting the above because to make the proposed Financial Reporting Council upto
capacity level of ICAB and SEC, it will take another 25 years of our government. It is better
to build more capacity in existing organization to serve the purpose of the proposed FRA
2010 with minimum time, efforts and cost of the government.
Conclusion:
Regulatory reform is required on Companies Act 1994, P.O.No. 2 of 1973- Bangladesh
Chartered Accountants Order, SEC Ordinance and other Commercial laws where necessary
etc. to incorporate all the objectives and purposes of proposed Financial Reporting Act 2010.
Country like Bangladesh has so many burning issues to address by the Government from the
peoples’ money. Without investing additional public money to separate department of
Government for ensuring financial control, government is suggested to strengthen ICAB, SEC
and RJSCF which will be more cost effective and less cumbersome to establish all the
objectives of the proposed Financial Reporting Act 2010. We can work on how can we build
more capacity of ICAB, ICMAB, SEC, RJSCF and make them more accountable for their
activities and duties.
Abbreviations:
BAS- Bangladesh Accounting Standards as adopted by ICAB time to time from the
International Accounting Standards.
BFRS- Bangladesh Financial Reporting Standards as adopted by ICAB time to time from the
International Accounting Standards.
BSA- Bangladesh Standards on Auditing as adopted by ICAB time to time from the
International Auditing Standards.
SEC- Securities and Exchanges Commission
ICAB- The Institute of Chartered Accountants of Bangladesh
ICMAB- The Institute of Cost and Management Accountants of Bangladesh
RJSCF- Registrar of Joint Stock Companies and Firms
FRA- Financial Reporting Act 2010
NBR- National Board of Revenue
ISA- International Standards on Auditing
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