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A regulatory review on statutory requirement for the financial
A regulatory review on statutory requirement for the financial
A regulatory review on statutory requirement for the financial
A regulatory review on statutory requirement for the financial
A regulatory review on statutory requirement for the financial
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A regulatory review on statutory requirement for the financial

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  • 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 LimitedAbstractThe objectives of the proposed Financial Reporting Act are very fair and very necessary forthe establishment of financial discipline over public interested Companies including listed andnon listed Companies. I believe there are very few professional accountants who will disagreewith above. I would like to point out one thing at the beginning of my writing that is “stillfollowing BAS and BFRS in preparation of Financial Statements and BSA in performingaudit by a chartered Accountant are not compulsory under Companies Act”. These are beingfollowed by chartered Accountants from their own initiatives from the Institutes of CharteredAccountants of Bangladesh as professional responsibility.The only issue is how we will achieve the objectives. Generally it is the Government who isresponsible to protect public interest and ensuring financial discipline over all institutes ofpublic interest including private companies, public companies, statutory corporation, NGOsand other business organizations. Government itself is nothing but an organization andgovernment protect and ensure public interest thorough various institution and branches ofGovernment organization like Securities and Exchange Commission, Bangladesh Bank,National Board of Revenue, Registrar of Joint Stock Companies and Firms includingParliament, Judicial bodies and executives bodies etc. Government of Bangladesh has threeexisting organizations for establishing financial discipline over public interested Companies1. The Institutes of Chartered Accountants of Bangladesh (P.O. No. 2 of 1973- BangladeshChartered Accountants Order) 2. Securities and Exchanges Commission and 3. The Institutesof Cost and Management Accountants of Bangladesh (Order No. LIII of 1977- Cost andManagement Accountants Ordinance). Do we need really another organization to establishand achieve our objectives on financial reporting? I have gone through the details of eachchapter of the proposed Financial Reporting Act 2010 and opine that Government ofBangladesh does not require to establish separate department or body under financialreporting Act 2010 as Financial Reporting Council rather we can strengthen the Institute ofChartered Accounts of Bangladesh by incorporating more responsibility and accountabilityunder P.O. No. of 1973.We might know Securities and Exchange Commission working onwith some mandates as per Securities and Exchange Ordinance including with the objectiveof protecting public interest on all listed and non listed ( to some extend) companies . Wemight know that all listed companies are required to submit quarterly and yearly financialstatements to SEC and Stock Exchanges. We can make compliance of BAS and BFRScompulsory in recording and preparation of financial statements of listed and non listedcompanies by SEC laws as well as we can make auditors of the listed and non listedcompanies binding that they have to follow the ISA or BSA compulsorily in performing theiraudit and an investigation team of SEC may review the audit working paper of an auditorwhere necessary. So we can work to build more capacity of SEC to establish Financialdiscipline of all listed companies where more public interested are involved. We would notlike to avoid role of registrar of joint stock Companies to establish all the objectives ofproposed Financial Reporting Act 2010 and its role to establish financial discipline over allregistered Companies, Firms and Societies. We can make binding to follow Accounting or 8
  • 2. European Journal of Developing Country Studies, Vol.1 2006 ISSN(paper)2668-3385 ISSN(online)2668-3687 www.BellPress.orgFinancial Reporting Standards adopted by the Institutes of Chartered Accountants ofBangladesh compulsorily and simultaneously we can add one section in Companies Act thatAuditors have to follow the ICAB adopted Auditing standards in each of their relevantassignment compulsorily. Instead of drafting new laws and forming another department of wecan empower SEC and Registrar of joint stack Companies to impose penalties for noncompliance 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 formedindependent Financial Reporting Council and define the duties. SOA 2002 enacted in USA toensure more effective control over financial reporting and restrict the some scope of externalauditors. Financial Reporting Act has been enacted in Mauritius in different way and theyformed independent Financial Reporting Council and define the duties. UK has financialreporting oversight Bodies which is active to monitor the functions of auditors and ensuringpublic interest from the Public interest Companies. (P.O. No. 2 of 1973- BangladeshChartered Accountants Order and Order No. LIII of 1977- Cost and ManagementAccountants OrdinancePoints from the proposed Financial Reporting Act 2010:Section 2:2(4) Financial year, definition will contradict with the definition of Financial year inCompanies Act 1994 Section 183(4).2(10) The definition of Audit firm should be more specific because without having formalqualification on auditing only an audit function cannot established a non qualified auditor asAudit 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 andAuditor General (additional Functions) Act, 1974. This is very weak law even weaker thatSEC 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” 9
  • 3. European Journal of Developing Country Studies, Vol.1 2006 ISSN(paper)2668-3385 ISSN(online)2668-3687 www.BellPress.orgSection 6: Formation of Council- We found that Governor of Bangladesh Bank will be theChairman of the Council by position and other three members would be Chairman SEC,Chairman Insurance Regulatory Authority and Chairman, NBR. These Four honorablepositions are very important and they are busy with their regular activities of the concernedorganization. We don’t understand how they will concentrate on new job roles which are alsovery public sensitive matters.I don’t like to address details on the daily operation of the proposed Financial ReportingCouncil and its other supporting units. I would like to put one comment that is “we have toappoint 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 beenworking on all general and specific objectives of the proposed Financial Reporting Act 2010since long with some instance of success and failure. We might know the success and failureof these two dignified institutes. You might agree with me that all departments of governmenthave some success and failure history.There might be some limitation of these two institutes with respect to resources, capacitiesetc. Without setting up Financial Reporting Council under FRA, If we can find out thelimitation and take necessary initiatives from the Government to eliminate the limitation, wecan make these grand institutes more functioning to ensure financial discipline over allpublicly interested organizations.Section 24: There should have scope for another appeal before High Court against the orderof 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 suggestedto 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 financialtransparency and discipline are required very badly for all companies irrespective of listed andnon-listed. Due to deficiency of financial transparency and discipline over all business andcommerce organization, Bangladesh government is losing huge revenue both VAT andIncome Tax. I can tell you that if we can ensure effective transparency and discipline over allCompanies, revenue from business and tax would be more than double instantly.The proposed Financial Reporting Act referred several times Rule of the Act on manyimportant issues, before finalizing the rule none can conclude on these important issues forexample definition of Public interest organization and condition for practicing license etc.How can we eliminate the limitation of existing regulators andbuild 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. 10
  • 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 11
  • 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 uptocapacity level of ICAB and SEC, it will take another 25 years of our government. It is betterto build more capacity in existing organization to serve the purpose of the proposed FRA2010 with minimum time, efforts and cost of the government.Conclusion:Regulatory reform is required on Companies Act 1994, P.O.No. 2 of 1973- BangladeshChartered Accountants Order, SEC Ordinance and other Commercial laws where necessaryetc. 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 thepeoples’ money. Without investing additional public money to separate department ofGovernment for ensuring financial control, government is suggested to strengthen ICAB, SECand RJSCF which will be more cost effective and less cumbersome to establish all theobjectives of the proposed Financial Reporting Act 2010. We can work on how can we buildmore capacity of ICAB, ICMAB, SEC, RJSCF and make them more accountable for theiractivities and duties.Abbreviations:BAS- Bangladesh Accounting Standards as adopted by ICAB time to time from theInternational Accounting Standards.BFRS- Bangladesh Financial Reporting Standards as adopted by ICAB time to time from theInternational Accounting Standards.BSA- Bangladesh Standards on Auditing as adopted by ICAB time to time from theInternational Auditing Standards.SEC- Securities and Exchanges CommissionICAB- The Institute of Chartered Accountants of BangladeshICMAB- The Institute of Cost and Management Accountants of BangladeshRJSCF- Registrar of Joint Stock Companies and FirmsFRA- Financial Reporting Act 2010NBR- National Board of RevenueISA- International Standards on Auditing 12

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