International Accounting Standard compliance analysis on nine pharmaceutical industries in Bangladesh

CHAPTER 1
INTRODUCTION
THIS CHAPTER WILL COVER THE FOLLOWING THINGS THROUGH OUT ITS
SPAN
 Introducing reader with IFRS ,BAS , BFRS and ICAB
 Background of the conducting the research / study
 Main motive of conducting this research ; that mean research goal
 Drawback that might be faced by the researcher while conducting his study
 The valid reasons of directing such research
CHAPTER 1
INTRODUCTION
SPAN
CHAPTER 1
INTRODUCTION
SPAN

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1.0 Introduction
International Financial Reporting standard is the global language of recoding, representing,
demonstrating and analyzing transaction, situations, and event affiliated with accounting. It also
provides interpretation in case of dispute raised in selection of proper standard from available
standards by reducing the number of alternative treatments. (Jon; Mouton 2000)
Day by day companies are intends to expand their business across their national boundary thus
shareholder base is created from different nation. By replacing different national accounting
standard the IFRS make it easy for the every firm operating outside their domestic market to
represent their financial position in a universal way, IAS, and also give them relief from the
complexity, difficulty, time and effort to get them accustomed to different national accounting
standard (Watts, Zimmerman, J. (1978))
IFRS helps to develop the modern era of accounting by clearly defining type of financial
statement to be prepared, financial statement objectives , qualitative characteristics of financial
statement , elements of financial statement ,rule to be exercised in recording and setting those
elements , recognition of those financial statement elements, measurement of those elements
and reporting of those financial statement element.(Zahir M.(2000))
The accounting world is wholly relies on the paths that IFRS prescribed to follow. This strong
dependency on IFRS created because IFRS conduct itself toward a broad objective “To develop

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a single set of high quality, understandable, enforceable and globally accepted financial reporting
standards based upon clearly articulated principles”. To meet the objective IFRS diversify its
development activities into different internal and external standard setting bodies such as
IFRSAC, conduct activities through combined participation and systematic manner, engage with
investors, regulators, business leaders and the global accountancy profession to get support,
comments, suggestion and criticism of development activities as well as collaborate
development of different accounting standard setting bodies.
IFRS initiated for the first time to resolve accounting phenomena and give guidance in
accounting practice in the organization; operating in European Union. Later IFRS got its
popularity around the word due to its rapid development of standard and rule which leads to
record transaction in an understandable, reliable, comparable and relevant manner; consequently
created harmonized accounting across in European Union. Although there are some criticism
from the part of US and France accounting standard; more than 100 countries adopt IFRS as their
accounting standard by the end of 2008.( Tower, Hancock & Bryant;1999)
The Institute of Chartered Accountants of Bangladesh (ICAB), which is an apex body
for the development of accounting profession in Bangladesh, has been working for the
adoption and improvement of accounting standards based on the prospects of IAS. The ICAB
consistently executes programs to adopt IAS as Bangladesh Accounting Standards (BAS).
The certified auditor from ICAB also take IAS as scale of justification , analysis and giving
opinion and decision about the financial statements accuracy , financial position of the company

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and giving qualified or unqualified report about the companies being audited. The Securities and
Exchange Commission (SEC) of Bangladesh requires the issuers of listed securities to prepare
financial statements in accordance with the requirements laid down in the Regulation and the
IASs as adopted by the ICAB. (Zahir M., 2000)
The stock exchange enlisted pharmaceutical industries; like other Industries; also conduct their
accounting practice in accordance with the International Financial Reporting Standards (IFRSs),
and Bangladesh Financial Reporting Standards (BFRSs). These firm comply with IFRS/ IAS in
case of revenue recognition, valuation of PPE ( property , plant and equipment) , depreciation of
PPE , recognition of asset, impairment of assets, calculation of tax , share premium and EPS ,
and preparation of prescribed financial statements
In this research paper, the main focus will be on the IAS adopted by BAS, compliance of those
IAS in accounting practice of the firm operating within pharmaceutical industry, area of
inconsistent practice of IAS , development of IAS , adoption of updated IAS by the firm of the
industry, recommendation on the whole scenario and findings of the ultimate efforts.

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1.1 Background of the Study
 The research paper has been conducted over 7 pharmaceutical companies’ accounting
practice in reporting and presenting financial position; entailed in their annual reports
(2011-2012) that are made to public; to realize the degree of consistency and
compliance of practicing accounting treatments with IAS rule or IFRS standards.
 Since U.K based financial reporting increasing gaining its popularity around the world
due to its greater effort in affiliating national and international standard and helping
national standard setting bodies; it is prominent for Bangladesh to adopt it in all aspect
of accounting practice. As Bangladesh is a developed country it business operation is
expanding across national order and complexity in trisection is also increase at a
greater extent, it is urgent for it to comply and expertise IFRS because most of the
country related with U.K follow IFRS and IFRS provide flexibility to resolve
exceptional trisection which are not covered by existing standard by allowing to use
principle based approach (IFRS).
 IFRS – Co-ordination with National standard setters is done through a process which
gives full freedom to NSS while adopting IAS/IFRS. For clear view process given
bellow –
1. Co-ordination of work plan with national standard setter (NSS)
2. IASB continue to publish ED & other documents for public comment
3. NSS publish their ED at the same time & seek comment on significant
divergence b/w two
4. NSS follow their own full due process

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 So our study is about to compliance of BAS with IAS and Adoption of IAS in
parasitical industries
1.2. Objective of the Study
 To find out the IAS compliance with BAS practicing within these companies Also
interpret the area where BAS is somehow differs from related IAS rules
 Sorting the BAS and IAS from the whole population of BAS and IAS principle or rule
( which are exercising within the industry ) and creating a relative comparison among
them
 A little bit analysis on company performance to justify whether full application IAS is
more successful then customized IAS for the nation or industry
 Point out the auditors opinion and the guideline they follow in case of auditing in the
industry
 Interpreting draw backs of IAS or BAS , Epitomize the finding and giving
recommendation

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1.3. Limitation of the Study
The study faced various problems which have been tried to overcome but there are some certain
limitations. The major limitations are:
Limitation of the study
 The study is not based on the population, it’s based on sample. So the entire
scenario cannot be found here.
 This study is for educational purpose. No professional purpose is included in
this report.
 Data collection is done from secondary sources as well beside publication IASB and
ICAB. So, the reliability of this data is related with publishers, writer or analysts made
sources of secondary data.
 I have few practical experiences in analyzing the Annual Reports. So, there
may be some lack of professionalism in this report
 Provability of skipping prominent data for the study mistakenly
 Shortage of time , assistance and resources
 There is only one source for finding the annual reports in Bangladesh. Only
SEC (securities & Exchange Commission) reference room is the only source
of these annual reports
 Some judgments are made on assumption, finding or secondary data. So I can’t provide
100% assurance on all analysis , judgments and discussion that I made throughout the
report

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1.4. Rationality of the Study
Every work or effort is directed to get something effective in use or get something which
contains utility to the person performing it or other. Our attempt to conduct the study is not
exceptional in that sense. We conduct our study to get idea about ---
 Scenario of accounting practice in Bangladesh by analyzing an industry- pharmaceutical
industry- as a sample
 How advance the accounting practice of Bangladesh on the side of compliance of IAS ;
which has growing importance in now a days
 Procuring knowledge about national standard of accounting practice ; developed on the
light of IAS ; developed by Bangladesh national standard setting bodies
 Whether any major change has been made in case of applying IAS or BAS or new
adoption of IAS has been made in recent years in pharmaceutical industries
 At all ; help in developing mindset and gaining know-how about how different
instrument , rule and principle is applied in real business world practice ; which
consequently provide us a practical view about different standards and thus put a strong
scar on the mind plot

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CHAPTER 2
THEORITICAL FRAMEWORK
THIS CHAPTER WILL COVER THE FOLLOWING THINGS
 Covering approaches of accounting
 Presenting major difference between IFRS and GAAP
 A little bit focus on regulatory system of IFRS
 Discuss about IFRS standard setting procedure
 Depicting conceptual framework of IFRS
 Importance or benefits of IFRS adoption
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CHAPTER 2
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CHAPTER 2

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2.0 Two Major Approaches of Accounting
Companies operating across globe adopt one of two main approach of accounting named- IFRS(
international Financial reporting standard ) and GAAP( generally Accepted Principles);
providing guideline in preparing, reporting and representing all sorts of accounting information,
trisections and event and even resolving dispute. (Street, Gray & Bryant; 1999)
The basic difference between IFRS and GAAP are –
1. IFRS is principle based and GAAP is principle based
2. IFRS is developed by standard setting body named IASB( international Standard
Setting bodies ) whether GAAP is developed by FASB (International Accounting
Standard Board )
3. IFRS is U.K based approach and GAAP is U.S based approach
There are other similarities and dissimilarities exist between these major domains of standards
given in following exhibits-
Topic GAAP IFRS IFRS for SMEs (
small and medium
size entities )
Fundamental basis Generally , specific
guideline and rules
Generally more
principle and
judgmental based
and few specific
guideline and rules
Generally more
principle and
judgmental based
and few specific
guideline and rules
LIFO inventory
costing
Allowed Not allowed Not allowed
Inventory
valuation
Lower of cost or
market
Lower of cost or
net realized value
Lower of cost or
net realized value
Goodwill carrying
value
Goodwill is not
amortized ; 2 step
impairment test
Not amortized ;
one step
impairment test
Amortized for
period up to 10
years ; one step
impairment test

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Impairment and
write downs
No reversal Can be reversed (
except goodwill)
Can be reversed (
except goodwill
Leasing Guideline and
specific tests
Similar guidance ;
no specific test
Similar guidance ;
no specific test
Reserves Record when
probable
Record when “
more like than not”
Record when “
more like than not”
Consolidation Consider variable
interest first then
voting interest
Non variable
interest entity
equivalent but
similar guideline ;
evaluate all control
elements and
consolidated
controlled entities
Non variable
interest entity
equivalent but
similar guideline ;
evaluate all control
elements and
consolidated
controlled entities
R&D costs Generally both
considered as
expense
Research is
expensed and
development is
capitalized
Both are expensed
Borrowing cost for
self – constructed
assets
Generally
capitalized and
amortized
Generally
capitalized and
amortized
Expensed
Hedge accounting Rigorous and
specific guidance
to apply hedge
accounting
Rigorous and
specific guidance
to apply hedge
accounting
Simplified ; only
certain hedge
types allowed

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2.1. Regulatory System and Regulatory Bodies of Accounting on the
Perspective of IFRS Standards
The regulatory system of accounting in IFRS is comprised with three major regulatory bodies
named-
IASC (international Accounting standard committee) or IFRS foundation:
this body; comprising with 22 trustees; is responsible for all governance issues , inquiring of
whether other standard setting bodies are properly founded or not , developing universal
standard, application of those standards in generating relevant information for investors and
creditors , promotion of those standard and setting a bridge among national and internal
accounting standards
The IASB (International Accounting Standard Setting Bodies):
This body is founded with 14 members and responsible for issuing new-new standard overtime
with the change of situation, condition and circumstances. The developed standard of this body
is previously known as IAS ( international accounting standard) but now a day the name is
replaced by IFRS( international financial reporting standard). Mission, vision, objective and
responsibilities are identical and consistent with IASC/ IFRS foundation
The IFRIC /IFRS foundation:
This body issue rapid guidance on accounting matters whenever a conflicting situation arise in
case of applying standard ( IFRS ); usually happens in case of dealing with alternative accounting
treatment accountant will face dilemma in making make choice about which standard is need
to be selected. For example: IFRIC 1, IFRIC 2 etc (interpretation set given by IFRIC)

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It is important to know about IFRIC and in gist IFRIC is –
The SAC (standards Advisory Council) or IFRS Advisory council:
SAC provide a forum of professional from different professional fields, business and location to
assist in developing standards and creating new standards.
There are some important know how about SAC are –
Provide guidance on application and interpretation of IFRS
Deals with newly identified FR issues not addressed in IFRS
Issues where unsatisfactory or conflicting interpretation have developed or likely to develop
SAC features SAC features
Give advice to board and trustees of IASB Meetings discussion and finding is open to
public
Comprises of 50 members Advise IASB on prioritization of its work and
on Implication of proposed standards
Consistently Consulted by IASB on all projects
and aspects of its functioning
Meets at least 3 times a year with IASB
trustees for discussing important issues

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The relationship among these bodies can be articulated as follow—
Advice
Appointed by
Appointed by appoint report to
Report to overview
Govern fraud
Interpretation
Creates
 Trustee Appointment Advisory Group
 Trustee advise IASC Foundation to appoint, overview and govern fraud in IASB ,IFRIC
and SAC
 IASC Govern , appoint and overview SAC and IFRIC
 IASB report to IASC and create IFRS standards
 SAC report to IASC and help IASB in case of developing new standards
 IFRC provide interpretation to IFRS standard ; issued by IASB
Trustee
Appointment
Advisory
Group
IASC foundation
IASB
SAC
IFRIC
IFRS standards

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2.2 Formation Process of IAS/ IFRS with the Combined Effort of
SAC, IASB and IASC
The creation of new standard or amendment made to the existing standard is done through
a straight forward way.
The procedure of development of new IFRS is as follow-
step 1
• Forming a forum of professionbal from different business , professional areas and
loacality
• Assigning the professional group to advise IASB in case of developing standard s (
IFRS/IAS)
step 2
• Identify the subject to be adressed by intended standard ; need to be developed
• Deployed professionals analyze the suject and gather idea about how to represent the
subject in a relevent and appropriate way in the aspect of accounting treat ment .
Inform IASB about the best ideas about adressing the subject which coonsequently
enable IASB to develop strandards
step 3
• Make a exposer darft of the intended standard ; which actually a draft version of the
future standards
Step 4
• publish the exposer draft to the public to encurage public comment, perception , idea
and sugession on the intended standards
Step 5
• Based on the consideration of the relevent comments ; received in draft ; IASB
decide whther to finalize the indented standards or not or is there any nacaessity
to make any amendment on the drafted standards
step 6
• At any stage IASB has full right to issue dicussion paper to encurage public
,professioan and members comments
Step 7
• The publication of IFRS , IFRIC interpration ,exposer dardft and final standrd
will became in practice and public only when 8 out of 14 members of IASB
agreed together
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SAC, IASB and IASC
loacality
IFRS/IAS)
future standards
agreed together
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SAC, IASB and IASC
loacality
IFRS/IAS)
future standards
agreed together

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2.3 Benefits of Adoption and Compliance of IFRS/IAS
There are numerous benefits of applying IAS / IFRS in accounting practice. The major benefits
are noted bellow to realize the opportunity cost of using IAS rather than using national standard.
Benefits of IAS /IFRS application
 Provide Better financial information for shareholders
 Better financial information for regulators
 Enhanced internal and external comparability
 Improved transparency of results
 Increased ability to secure cross-border listing; Better management of global operations; and
decreased cost of capital.

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2.4. Conceptual Framework of IFRS / IAS
The IASB Framework was approved by the IASC Board in April 1989 for publication in July
1989, and adopted by the IASB in April 2001.
Conceptual framework define the nature and purpose of accounting as well as deals with
theoretical and conceptual issues related with financial reporting; thus forming a coherent and
consistent foundation for developing accounting standard .more specifically conceptual
framework is a coherent system of interconnected objectives and prominent principle which
recommend the nature, function, limit and convention of financial accounting and financial
statements.
Conceptual framework is important because it ensure the consistent development of accounting
standard or GAAP in accordance with established principles. Fire fighting situation is carefully
handled by conceptual framework thus reduce conflicts between different accounting standards
or accounting standards and legislation. If conceptual framework is not applied consistently,
more important issues relating with development of a certain standard will be overlooked willy-
nilly. Conceptual framework covers exceptional transactions; which are not the subject of an
accounting standard; by using its increased flexibility. Conceptual framework of accounting is
two dimensional – (1) FASB based and (2) IASB based.
FASB based conceptual frame deals with ---
a. The objective of financial statements;
b. The qualitative characteristics that determine the usefulness of information in
financial statements;
c. The definition, recognition and measurement of the elements from which
financial statements are constructed; and
d. Concepts of capital and capital maintenance.

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Objective of financial statements:
 The objective of financial statements is to provide information about the financial
position, performance and changes in financial position of an entity that is useful to a
wide range of users in making economic decisions. Financial statements prepared for this
purpose meet the common needs of most users. However, financial statements do not
provide all the information that users may need to make economic decisions since they
largely portray the financial effects of past events and do not necessarily provide non-
financial information.
 In order to meet their objectives, financial statements are prepared on the accrual basis of
accounting.
 The financial statements are normally prepared on the assumption that an entity is a going
concern and will continue in operation for the foreseeable future.
Qualitative characteristics:
 Qualitative characteristics are the attributes that make the information provided in
financial statements useful to users. The four principal qualitative characteristics are
understandability, relevance, reliability and comparability. In practice a balancing, or
trade-off, between qualitative characteristics is often necessary.
Elements related with financial statements:
 The elements directly related to the measurement of “financial position” are assets,
liabilities and equity. These are defined as follows:
i. An asset is a resource controlled by the entity as a result of past events and
from which future economic benefits are expected to flow to the entity.

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ii. A liability is a present obligation of the entity arising from past events, the
settlement of which is expected to result in an outflow from the entity of
resources embodying economic benefits.
iii. Equity is the residual interest in the assets of the entity after deducting all
its liabilities.
 The elements of “income and expenses “are defined as follows:
i. Income is increases in economic benefits during the accounting period in
the form of inflows or enhancements of assets or decreases of liabilities
that result in increases in equity, other than those relating to contributions
from equity participants.
ii. Expenses are decreases in economic benefits during the accounting period
in the form of outflows or depletions of assets or incurrence of liabilities
that result in decreases in equity, other than those relating to distributions
to equity participants.
 An item that meets the definition of an element should be recognized if:
i. It is probable that any future economic benefit associated with the item
will flow to or from the entity; and
ii. The item has a cost or value that can be measured with reliability.
 Measurement is the process of determining the monetary amounts at which the elements
of the financial statements are to be recognized and carried in the balance sheet and
income statement. This involves the selection of the particular basis of measurement.

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 The concept of capital maintenance:
I. The concept of capital maintenance is concerned with how an entity defines the
capital that it needs to maintain.
II. It provides the connection between the concepts of capital and the concepts of
profit because it provides the reference by which profit is measured only
inflows of assets in excess of amounts needed to maintain capital may be
regarded as profit and therefore as a return on capital.
III. Therefore, profit is the surplus amount that remains after expenses (including
capital maintenance adjustments, where appropriate) have been deducted from
income. If expenses exceed income the residual amount is a loss.
Figure: Conceptual framework of IFR
objectives
elements ; qualitative
charactaristics
recognition criteris ;
financial statement vs.
financial reporting ;
measurements
reporting earning , reporting find
flow & lequidity ; financial
statement and other means of
financial reporting
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objectives
• Fundamentals
elements ; qualitative
charactaristics
• operational
recognition criteris ;
financial statement vs.
financial reporting ;
measurements
• Display
reporting earning , reporting find
flow & lequidity ; financial
statement and other means of
financial reporting
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• Fundamentals
• operational
• Display

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CHAPTER 3
LITERATURE REVIEW
THIS CHAPTER WILL ENTAIL THE THINGS GIVEN BELLOW:
 A brief history of IFRS emergence and its acceptance over the world as international
accounting standard
 Why adoption of IFRS is required in the era of globalization?
 Positive impact of IFRS adoption through BAS in Bangladesh
 IFRS and IAS first time adoption track in Bangladesh
 A theoretical analysis of all IAS based on IAS adoption practice in Bangladesh
pharmaceutical firm
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CHAPTER 3
LITERATURE REVIEW
accounting standard
pharmaceutical firm
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CHAPTER 3
LITERATURE REVIEW
accounting standard
pharmaceutical firm

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3.0. History of IFRS and BFRS and movement of both standards
evolving overtime:
 Now a day IASB issues all IFRS and exert inconsistent effort on development of IFRS to
make it more flexible, understandable, easily applicable and universally acceptable. But
before the inception of IASB the IASC initiate the first effort in standard development
field for the best accountancy. IASC is a body established in 1973 through an
agreement made by professional accountancy bodies from Australia, Canada, France,
Germany, Japan, Mexico, the Netherlands, the United Kingdom and Ireland, and the
United States of America.
 Up to 2000, the IASC’s rules were described as “International Accounting Standards”
(IAS).
 In 1997 after nearly 25 years of glorious attainments; IASC realized that to continue a
smooth development process in IAS, it must find out a way to make bridge between
national accounting standards and practices and high-quality global accounting standards.
 In late 1997 IASC formed a Strategy Working Party that published a discussion paper in
December 1998 and final recommendations in November 1999. The IASC Board
approved the proposal by December 1999, and the IASC member bodies did the same in
May 2000. The new standards-setting body was named as International Accounting

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Standards Board (IASB) and it has been performing the rule-making function from April
2001.
 Major helping bodies operating as a non-separable part of IASB reporting and
development structure contain- IASB, IASC Foundation, International Financial
Reporting Interpretations Committee (IFRIC), previously Standing Interpretations
Committee, SIC under IASC), Standards Advisory Council (SAC) and Working Groups.
IASB has good finance for development, good freedom in making decision and good
forum of professional to lead its operation. So this body is one of the successfully
operating bodies formed by IASC in 2001.
 The IASB describes its rules under the new tag “International Financial Reporting
Standards (IFRS), though it honors the prior rules (IAS) issued by the old standard-setter
(IASC).
 In order to achieve objective like – setting an accounting system which enhance
comparability , consistency , reduces accounting conflict ( rising due to increasing
complexity for extensive globalization) and ensure uniqueness -- the accounting
profession developed the solutions like: the American solution GAAP or the European
solution (British solution to be read) IAS/IFRS. On the backdrop of getting a single set of
international accounting standards (since October 2002, the IASB and FASB have been

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working thoroughly toward convergence of IFRS and U.S. GAAP), IFRS is rapidly
gaining acceptance as over 100 countries; have recently moved to IFRS reporting or
decided to require the use of these standards in the near future and even the U.S.
Between 2005 and 2006, the number of foreign private issuers filing with the SEC using
IFRS jumped from a handful to 110, and the SEC expects the number to continue to
increase (IASB report; 2005).In February 2006, SEC Chairman Christopher Cox
reaffirmed the SEC’s commitment to achieving one set of high quality, globally accepted
accounting standards and opened the possibility that U.S. financial statements could be
prepared using IFRS or U.S. GAAP.
Within few year after the formation of new standard setting body ( IASB), the SEC
announced its support of a memorandum of understanding named “the Norwalk
Agreement”; done between the Financial Accounting Standards Board (FASB) and the
International Accounting Standards Board( IASB).
In between 2005 and 2006, the number of foreign private issuers filing with the SEC
using IFRS jumped from a few number to 110. Thus SEC predicts the increasing number
of adoption of IFRS in future. .In February 2006, SEC Chairman Christopher Cox unveils
the possibility that U.S. financial statements could be prepared using IFRS or U.S.
GAAP. In 2007, the SEC allows foreign private issuer (PIs) to prepare financial

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statements in accordance with IFRS as issued by the IASB without any reconciliation to
GAAP. SEC timeline (Baitter; 2007) is given bellow for further clarification---
Figure: 1.1
 EU requires publicly held companies to prepare financial statement, report and discloser
based on the IFRS /IAS by January 1; 2005. Countries with prominent capital market like
-Australia, Hong Kong, Singapore and South Africa decided to adopt and has already
adopt accounting system equivalent to IFRS/IAS. Even SEC allows any enlisted firm to
switch from GAAP to IFRS/IAS. Organization of Securities Commissions (IOSCO), the
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Figure: 1.1
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Figure: 1.1

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international organization of national securities regulators, has suggested its members to
permit foreign issuers to use IFRS for cross-border securities offerings and listings. IASB
has been indefatigable in promoting IFRS at a political level.
 The FASB and the IASB say they will revise the Norwalk Agreement to create a one set
of accounting standards from which all significant capital markets would be able to
operate by 2013.
 IASs have become an essential part of the legal framework of Bangladesh from 1997 by
insertion of section 12(2) into the Securities and Exchange Rules 1987. The ICAB has
been adopted 29 out of 34 IASs as Bangladesh Accounting Standards (BAS); which is
around 85% compliance with IFRS or IAS.

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3.1. What does IFRS adoption mean and what are the terminologies related
with adoption?
.
 “Nobes and Zeff (2010)”, give a definition of IFRS adoption to mean the full-scale
voluntary use by a company of IFRS as issued by the IASB before such use become
compulsory or mandatory in its jurisdiction. By this definition, two forms of IFRS
adoption can be observed.
I. First, a voluntary application of the IASBs standards without any alteration of the
standards and
II. Second a mandatory adoption of IFRSs where legal provisions require
jurisdictions to apply IFRS as issued by the IASB to the latter.
 Beyond these two types of IFRS adoption, other countries often use another form of
adoption. This form of adoption reminds us of the due process through which
International Accounting Standards are produced. The due process in setting International
Accounting Standards is that, constituents identify areas in financial reporting that needs
to be improved. Following this, the technical staff at the IASB develops a discussion
paper that issued to the public for comments over a limited period. They then design the
proposed standard into an Exposure Draft, which is showcased to the public for further
comments and public hearings before a substantive IFRSs can be pronounced. Notable
among countries that have adopted this due process are Australia, Canada and New
Zealand. In this approach, adopting countries will first translate IFRS into their local
standards following the due process of the IASB. Whether by content or by process, IFRS
adoption refers to the complete replacement of IFRSs with any other standard a country
might have.
 Let us for a moment look at the terminology, which the IASB uses when referring the
IFRS adoption. The board has on several occasions referred to different forms of IFRS
applications yet in fact meaning IFRS ‘’adoption’’. In their recent annual report, they
provide the state of IFRS adoption around the world as seen in the list below-

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Table: IFRS Application in Some developed countries. Source: IASB annual report 2011 pg (3)
This list suggests that the IASB has in many instances contradicted themselves when they speak
of IFRS adoption. Take China for example; can we say that they have adopted IFRSs? The
answer is “No” because the Chinese have their own national accounting standards. It is true that
Chinese National Accounting Standards are now closer to IFRSs than ever before. However, in
essence, China cannot claim to have adopted IFRS.
IFRS Adoption List as Provided by the IASB
Year Country
2012 G20: two thirds of G20 members now require the use of IFRSs
2011 Russia: announces intention to adopt IFRSs from 2012 IFRS for SMEs: nearly 80
jurisdictions have adopted the IFRS for SMEs, or announced plans to do so
2008 Malaysia and Mexico: announce intention to adopt IFRSs
2006 China: adopts accounting standards substantially in line with IFRSs, with goal of
full convergence
2005 Nearly 7000 Companies adopt IFRS in the European Union including South Africa
and Simultaneously switch over from national GAAP to IFRS for listed companies
2007 Bangladesh started to reform their national accounting standard in accordance with
IAS published by IFRS

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3.2. BAS Adoption of IFRS / IAS over the time being in Bangladesh:
Since Bangladesh is facing a rapid escalation in foreign trisection, increasing number of
multinational firm in domestic market and effect of globalization; adoption as well as
compliance with IAS is became prominent. Because most of the developed country now a day
exercising IAS
Here I want to represent a summary of total number of IAS rule that has been adopted by ICAB
and it equivalent BFRSs from the very beginning of the adoption to adoption that had been made
recently.
If someone carefully observe the adoption and compliance tack then they will surely realized that
most of the adoption is made in 2007and in near future our BAS will be more enriched and
appropriate with the full adoption or compliance with IAS. Besides that there is a treat of
abolishment of BAS by IAS.
International Accounting Standard Compliance and Adoption
IAS No. Title Status of adoption and
compliance by ICAB
Effective date as BAS
1 Presentation of
Financial Statements
Adopted 1st
January 2007
2 Inventories Adopted 1st
January 2007
7 Cash Flow Statements Adopted 1st
January 1999
8 Accounting Policies,
Changes in Accounting
Estimates and Errors
Adopted 1st
January 2007

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10 Events after the Balance
Sheet Date
Adopted 1st
January 2007
11 Construction Contracts Adopted 1st
January 1999
12 Income Taxes Adopted 1st
January 1999
16 Property, Plant and
Equipment
Adopted 1st
January 2007
17 Leases Adopted 1st
January 2007
18 Revenue Adopted 1st
January 2007
19 Employee Benefits Adopted 1st
January 2004
20 Accounting for
Government Grants and
Disclosure
of Government
Assistance
Adopted 1st
January 1999
21 The Effects of Changes
in Foreign Exchange
Rates
Adopted 1st
January 2007
23 Borrowing Costs Adopted 1st
January 2010
24 Related Party
Disclosures
Adopted 1st
January 2007
26 Accounting and
Reporting by
Retirement Benefit
Adopted 1st
January 2007

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Plans
27 Consolidated and
Separate Financial
Statements
Adopted 1st
January 2010
28 Investments in
Associates
Adopted 1st
January 2007
29 Financial Reporting in
Hyperinflationary
Economies
Not adopted –
inapplicable in
Bangladeshi context
----------------------
31 Interests in Joint
Ventures
Adopted 1st
January 2007
32 Financial Instruments:
Presentation
Adopted 1st
January 2010
33 Earnings per Share Adopted 1st
January 2007
34 Interim Financial
Reporting
Adopted 1st
January 1999
36 Impairment of Assets Adopted 1st
January 2005
37 Provisions, Contingent
Liabilities and
Contingent
Assets
Adopted 1st
January 2007
38 Intangible Assets Adopted 1st
January 2005

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Recognition and
Measurement
Adopted 1st
January 2010
40 Investment Property Adopted 1st
January 2007
41 Agriculture Adopted 1st
January 2007
Table: (Source) ICAB website, ICAB annual report 2011
There are some other IFRS adoption made in between 2007 – 2013; but most of these adoption
and compliance is made in 2013—
IFRS Adoption and Compliance
IFRS No. IFRS titles Status of adoption and
compliance by ICAB
Effective Date as BFRS
1 First time Adoption of
International Financial
Reporting
Standards
Adopted 1st
January 2009

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2 Share Based Payment Adopted 1st
January 2007
3 Business Combinations Adopted 1st
January 2010
4 Insurance Contracts Adopted 1st
January 2010
5 Non Current Assets held
for Sale and
Discontinued
Operations
Adopted
1st
January 2007
6 Exploration for and
Evaluation of Mineral
Resources
Adopted 1st
January 2007
Disclosures
Adopted 1st
January 2013
8 Operating Segments Adopted 1st
January 2013
9 Financial Instruments Not adopted---not
applicable in
Bangladeshi context
-------
10 Consolidated Financial
Statements
Adopted 1st
January 2013
11 Joint Arrangements Adopted 1st
January 2013
12 Disclosure of Interests
in Other Entities
Adopted 1st
January 2013
13 Fair Value Adopted 1st
January 2013

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Measurement
Table: (Source) ICAB website, ICAB annual report 2011
3.3. Positive Impact on the National Accounting Practice of Bangladesh Due to
Adoption of IFRS
In a developing country like Bangladesh, we can figure out the following prospects that may be
materialized by the adoption of IFRS:
1. The adoption may have some strong impact on the corporate sector. Agency problem
between management and shareholders can be substantially reduced through execution of
IFRS as increased transparency causes managers to act more in the interests of the
shareholders (see Watts, 1977; Watts and Zimmerman, 1986). The increased
transparency promised by IFRS also could cause a similar increase in the efficiency of
contracting between firms and lenders. The increased transparency and loss recognition
timeliness promised by IFRS could increase the efficiency of contracting in debt markets,
with potential gains to equity investors in terms of reduced cost of debt capital
.
2. The weakness of small investors is a long time established problem and undoubtedly it is
a big obstacle for the stock market development in Bangladesh. Small investors are less
likely than investment professionals to be able to anticipate financial statement
information from other sources. IFRS adoption could reduce the cost of investors of
processing financial information. Improving financial reporting quality allows the small
investors to compete better with professionals, and hence reduces the risk they are trading
with a better-informed professional (known as “adverse selection”).

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3. Another improvement of adopting IFRS to reduce information irregularity in the
corporate sector can arise due to its emphasis on fair value accounting (FVA). Most
economists argue that fair value incorporates more information into the financial
statements than historical costs. Though other conditions in Bangladesh are not favorable
for implementing FVA (like achieving observable market prices or independently
observable, accurate estimates of liquid market prices that cannot be materially
influenced by managers due to less perfect market liquidity), still FVA can make
financial statements more informative, with potential advantages to investors, and if
enforceable more useful for purposes of contracting with lenders, managers and other
parties (see Ball, Robin and Sadka (2006). IFRSs are instilled into FVA. Particularly as
listed (Ball 2005):
a) IFRS 2 requires share-based payments to be accounted at fair value;
b) IFRS 3 provides for minority interest to be recorded at fair value;
c) IAS 16 provides a fair value option for property, plant and equipment;
d) IAS 36 requires asset impairments (and impairment reversals) to fair value;
e) IAS 38 requires intangible asset impairments to fair value and some others;
f) IAS 39 requires fair value for financial instruments other than loans and
receivables that are not held for trading, securities held to maturity; and
qualifying hedges (which must be near-perfect to qualify); and
g) IAS 40 provides a fair value option for investment property.

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4. Apart from these, adoption of IFRS in Bangladesh can reduce accounting diversity thus
will encourage the foreigners for cross border investment which in turn may improve the
liquidity of the capital markets and enlarge firm’s investor base to improve risk-sharing
and lowers cost of capital (e.g. Merton, 1987).
5. Prevailing local GAAP is not enough to ensure proper disclosure quality and there are
ambiguities among numerous rules, guidelines and notifications that are often self-
contradictory and perplexing to one another. Mandatory adoption of IFRS will reduce
such vagueness and create more binding on the firms to perform their disclosure
responsibility (e.g., Ding et al, 2007; Baee Tan and Welker, 2008 evidence that IFRS are
more comprehensive than most local GAAP). Since the early 1980s, various bilateral and
multilateral agencies have been playing an active role in the diffusion of Western
accounting standards to the developing world (see Rahaman and Lawrance, 2001;
Neuetal., 2002). Bangladesh, as a country hugely dependent on foreign aid and also a
participant of globalization trend, has been facing the urgency of different global
community for adopting IASs/IFRSs to ensure accountability and transparency in
financial reporting.
Accounting profession is seeking to adopt all applicable IASs (see Institute of Cost and
Management Accountants of Bangladesh, 1999, p. 12) but such decision is continually driven by
institutional legitimization rather than careful appreciation of the differing contextual variables in
Bangladesh (see, Susela, 1999; Points and Cunningham, 1998). In fact, after a long period
without any involvement or interference with the practice of accounting, the government of

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Bangladesh, in response to the immense pressure by the international lending/donor agencies to
standardize financial reporting, has started lobbying the accounting profession to adopt all
applicable IASs/IFRSs for use in Bangladesh (ICMAB, 1999).
3.4. Problem Faced by Standard Setting Bodies of BAS During Adoption
Process of IAS:
The general perception is: after the standards (BAS) are reviewed and adopted; that most of these
standards are carbon copies with the same numbers as the original IASs. (Miretal, 2005, p. 826)
Another problem lies on ambiguity of role and responsibility of the SEC and the ICAB. Once the
adoption process is over the SEC then has the responsibility, as delegated by the Government of
Bangladesh, to monitor compliance with these standards by listed companies. According to the
Sec 12 (2) of the Securities and Exchange Rules 1987, ‘the financial statements of an issuer of a
listed security shall be prepared in accordance with the requirements laid down in the Schedule
and the International Accounting Standards/IFRSs as adopted by the Institute of Chartered
Accountants of Bangladesh’. That is, all the responsibilities of IAS adoption process lie with the
ICAB. The SEC does not participate in the process though it is the top regulatory body in
Bangladesh for enforcement of IASs/IFRSs in the listed companies. Here it may be noted that the
US SEC has the authority to set accounting standards for companies, but always has delegated
the responsibility to the accounting profession, a strong and independent standards setting body
like FASB. Most importantly, the US SEC delegated only the responsibility, not the authority, to
set standards and if it does not agree with a particular standard issued by the private sector, it can
force a change in the standard (See Spiceland et al, 2004, p. 9). It is clear that, in Bangladesh,

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SEC lacks expertise to formulate standards which led them to delegate the responsibility to the
ICAB.
From a diagnostic review carried out in Bangladesh on accounting and auditing in January –
March 2003, the World Bank’s Report on the Observance of Standards and Codes (ROSC)
Bangladesh states that, the accounting and auditing practices in Bangladesh suffer from
institutional weaknesses in regulation, compliance, and enforcement of standards and rules. In
many cases, the preparation of financial statements and conduct of audits are not consistent with
IASs and international auditing practices
The ROSC (Report on the Observance of Standards and Codes (World Bank)) revealed the
necessity of enacting of “a new Financial Reporting Act and the repeal of the provisions on
accounting, auditing, and financial reporting in Companies Act 1994, Bank Companies Act
1991, Insurance Act 1938, and other related regulations.” This recommendation is appreciable
because such initiative may substantially eliminate all conflicting issues among the prevailing
regulations and pronouncements and undoubtedly, it will be easy to update accounting, auditing,
and financial reporting requirements from time to time by simply amending the single act for
financial reporting. The ROSC advocated that the proposed Financial Reporting Act should
focus on making legal arrangements to “fully adopt IAS/IFRS/ and ISA without modification
and ensure mandatory observance of these standards” (ROSC, 2003, p.11)

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3.5 Selected 9 Company’s Compliance with IAS on the Year 2013(A
Theoretical Justification and Comparison):
Selected sample companies compliance with different IAS adopted BAS in case of preparing,
analyzing, presenting and reporting financial statements and practicing accounting policies and
procedures are justified and analyzed bellow under the title of different IAS adopted BAS. For
this purpose we will use 2013 scenario of all companies.
3.5.0 “IAS -1 Presentation of Financial Statement” Compliance
IAS -1 requirements Sample companies compliance
Preparation of Financial Statement such as –
1. a statement of financial position as at the
end of the period;
2. a statement of comprehensive income for
the period;
3. a statement of changes in equity for the
period;
4. a statement of cash flows for the period
5. Notes to the financial statement
Fully complied with this requirement
1. On year 2013 the companies prepare
statement of financial position
2. On the year 2013 it creates Statement of
comprehensive income
3. On the year 2013 the company create
statement of cash flow
4. Statement of change in capital is created
on the year 2013
5. Notes to the financial statement are also
disclosed fully by representing all element
included in above statements to clarify
them to general stockholders

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Financial statement should represent the reflection
of the principle going concern.
Prepared financial statements on a going concern
basis which are reflected in its long-term asset,
liabilities. There are no doubt about the
continuance of going concern because the
companies have facing a upward growth
consistently ; thus no discloser of uncertainty
about going-concern is not necessary in the year
2013
Additional discloser when necessary There was no major occurrence happened to give
additional discloser on the year 2013
 Decision: So we can say that all sample companies are complying with IAS-1
3.5.1. “IAS -2 Inventories” Compliance
Inventories shall be measured at the lower of cost and
net realizable value
Yes; the companies comply with this requirement
and describe about it in notes with title inventory
on year 2013.
The cost of inventories on year 2013 comprises of
expenditure incurred in the normal course of
business in bringing the inventories to their
present location and condition. Net realizable
value is based on estimated selling price less any

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further costs expected to be incurred to make the
sale
The cost of inventories shall be assigned by ether
using the first-in, first-out (FIFO) or using
weighted average cost formula.
Cost is determined on weighted average cost
basis in year 2013 in all selected companies.
 Decision : The companies conform with IAS-2 fully
3.5.2. “IAS-7 Statement of Cash Flow” Compliance
The statement of cash flows shall report cash
flows during the period classified by operating,
investing and financing activities.
The company maintains this requirement. the
cash flow statement of year 2013( common
structure to all sample companies is given
bellow ( figure 6.0.3 yellow shaded areas)
Follow ether direct method or indirect method The companies used direct cost method because
it report major classes of gross cash receipts and
gross cash payments in case of calculation of CF
from operating activities.

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(7out of 9 sample companies name ) Pharmaceuticals Limited
Statement of Cash Flow
For the year ended 31 December 2013
Particulars Taka
Cash Flows from Operating Activities :
Receipts from Customers and Others
Payments to Suppliers and Employees
Cash Generated from Operations
Interest Paid
Interest Received
Income Tax Paid
Net Cash Generated from Operating Activities
Cash Flows from Investing Activities :
Acquisition of Property, Plant and Equipment
Intangible Assets
Disposal of Property, Plant and Equipment
Short Term Investment
Net Cash Used in Investing Activities
Cash Flows from Financing Activities :
Net Decrease in Long Term Borrowings
Net Increase / (Decrease) in Short Term Borrowings
Dividend Paid
Net Cash Generated from Financing Activities

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Increase in Cash and Cash Equivalents
Cash and Cash Equivalents at Beginning of Year
Cash and Cash Equivalents at End of Year
Figure: (Cash flow statement structure of all selected companies)
 Decision: The Companies complies with IAS-7 by preparing cash flow statement in
accordance with direct method.
3.5.3. IAS 12 Income Taxes- Compliance
Income tax expense comprises of current and
deferred tax.
1. Current tax liabilities/assets for the current
and prior periods shall be calculated at the
amount expected to be paid to the taxation
authorities; using the tax rates/tax laws that
have been enacted or substantively enacted
by the end of the reporting period
2. Deferred tax assets and liabilities shall be
measured at the tax rates that are expected
to apply to the period when the asset is
The company comply with the tax related rules –
IAS 12 in 2013 by-
1. Current tax expense has been recognized on
the basis of the Finance Act 2012 and
Income Tax Ordinance 1984.” The Finance
act and income tax ordinance 1984 are just
intended to determine tax rate but basis of
calculating income tax return is based on
IAS -12.
2. The company has recognized deferred tax
using balance sheet method in compliance
with the provisions of IAS 12: Income

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realized or the liability is settled, based on
tax rates (and tax laws) that have been
enacted or substantively enacted by the end
of the reporting period
Taxes.
The company’s policy of recognition of
deferred tax assets/ liabilities is based on
temporary differences between the
carrying amount (Book value) of assets and
liabilities for financial reporting purpose
and its tax base
 Decision: the company fulfills IAS-12 with full compliance with every knock and
corner of the rules in case of recognizing and calculating income tax.

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3.5.4“IAS 16 - Property, Plant and Equipment” Compliance
IAS-16 requirements Sample companies compliance
Property, plant and equipment will be treated as
tangible items that will fulfill these requirements
given bellow :
1. are held for use in the production or supply
of goods or services, for rental to others, or
for administrative purposes; and
2. are expected to be used during more than
one period
They treat these common asset as tangible which
fulfill the 2 conditions for tangible asset given on
adjacent box—
 Building and Other Construction
 Plant and Machinery
 Furniture & Fixtures
 Transport & Vehicle
 Office Equipment
Measurement after recognition-
1. Cost model: After recognition as an asset,
an item of property, plant and equipment
shall be carried at its cost less any
accumulated depreciation and any
accumulated impairment losses.
2. The revaluation model: After recognition
as an asset; whose fair value can be
measured reliably shall be carried at a
1. PP&E has been stated at cost or revalued
amount less accumulated depreciation in
compliance with the requirements of IAS
16
2. Not maintained the second requirement in
case of recognizing any of tangible assets

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revalued amount; being its fair value at the
date of the revaluation less any subsequent
accumulated depreciation and subsequent
accumulated impairment losses
Depreciation is the systematic allocation of the
depreciable amount of an asset over its useful life.
Depreciable amount is the cost of an asset, or other
amount substituted for cost, less its residual value
Depreciation is presented to amortize the cost of
the assets after commissioning, over the period of
their expected useful lives, in compliance with the
provisions of IAS 16
Depreciation is provided at the rates on reducing
balance basis ; given bellow:
 Building and Other Construction (2% to
10%)
 Plant and Machinery (5% to 15%)
 Furniture & Fixtures 10%
 Transport & Vehicle 20%
 Office Equipment 10% -15%

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 Decision: all of the 10 companies completely maintain the provision of IAS 16
3.5.5. The IAS Rule that the Companies Skips in Between IAS1 – IAS17
IAS Rules Sample companies compliance
IAS 8 “Accounting Policies, Changes in
Accounting Estimates and Errors”
No change in accounting principle is made in
year 2013 so this provision is overlooked by
the companies
IAS 10 Events after the Reporting Period This part is mainly for auditors to follow; so
the companies skip this provision
 Decision : all of the 10 companies doesn’t comply with IAS 7 and 10 willy-nilly
3.5.6. IAS 17 Leases compliance as leaser
Provision for two types of lease from the
perspective of leasors-
1. Operating lease:
Lessor shall present assets subject to
operating leases in their statements of
1. No operating lease is continuing within this
company; so the company doesn’t
obligated to follow the part of this

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financial position according to the nature
of the asset (consider whether asset is fixed
or current).
The depreciation policy for depreciable
leased assets shall be consistent with the
lessor’s normal depreciation policy for
similar assets, and depreciation shall be
calculated in accordance with IAS 16 and
IAS 38.
Lease income from operating leases shall
be recognized in income on a straight-line
basis over the lease term
2. Finance lease: Lessors shall recognize
assets held under a finance lease in their
statements of financial position and present
them as a receivable at an amount equal to
the net investment in the lease
Costs incurred by manufacturer or dealer
lessors in connection with negotiating and
arranging a lease shall be recognized as an
expense when the selling profit is
provision
2. In compliance with the IAS 17: Leases,
cost of assets acquired under finance lease
along with related obligation has been
accounted for as assets and liabilities
respectively of the companies, and the
interest element has been charged as
expenses

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recognized
 Decision: Most of the companies maintain this IAS provision partially by only
exercising it in accounting treatments on financial lease. Some of the company
totally skip this provision due to absence of any leasing activities/ transactions
3.5.7. IAS 18 “revenue” Compliance Justification
This Standard shall be applied in accounting for
revenue arising from the following transactions
and events-
1. the sale of goods: Revenue from the sale
of goods shall be recognized when all the
following conditions have been fulfilled-
 the entity has transferred to the
buyer
 the amount of revenue can be
measured reliably;
 the economic benefits associated
with the transaction will flow to
Respective compliance of the sample companies
in different requirements of this IAS provisions
1. Revenue is recognized upon invoicing the
customers for goods sold and delivered.
Sales are accounted for net of value added
tax, trade discount and allowances.
In case of cash delivery, revenue is
recognized when delivery is made and
cash is received by the Companies

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the entity
 costs incurred in respect of the
transaction can be measured
reliably
2. The rendering of services
3. The use by others of entity assets yielding
interest, royalties and dividend
2. Revenue from services given is
documented in income statement in
proportion to the stage of completion of
the transaction at the reporting date.
3. When the Group acts as an agent, the
revenue is recognized in the net amount of
commission earned by the Group.
Dividend income is recognized when right
to receive payment of such dividend is
recognized
Common costs and facilities are allocated
to entities based on common cost sharing
agreement and pursued constantly.

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Cash flows from operating activities have
been presented under direct method
 Decision: all the companies under consideration consistently maintain this IAS-18
since the year 2002.
Findings:
 Sales of good is recorded as fair value
 Service revenue is recognized as per as the proportion of whole service completed
 Dividend and commission is recognized when those are earned
 Cash flow from operating activities are recorded at direct method rather than
indirect method

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3.5.8. IAS 19-“Employee Benefits” Compliance
IAS 19 requirement Sample companies compliance
Short-term employee benefits requirements:
 Short-term employee benefits are
employee benefits that are need to be
settled within twelve months after the
end of the period in which the employees
render the related service.
 Company should recognize the
undiscounted amount of short-term
employee benefits expected to be paid in
exchange for that service either :
(a) as a liability (accrued expense),
after subtracting any amount
already paid
If the amount paid exceeds the
undiscounted amount of the
benefits, an entity shall recognize
that excess amount as prepaid
expense
Or
 Short-term employee benefits include
salaries, bonuses, leave encashment, etc.
; which are exhausted within 12 month
in the year 2013
 Obligations for such benefits are
measured on an undiscounted basis and
are expensed as the related service is
provided in the year 2013

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(b) as an expense, unless another
Standard( such as IAS2 –
inventory and IAS16-PP&E)
requires or permits the insertion
of the benefits in the cost of an
asset
Post-employment benefits requirement :
 Post-employment benefits are employee
benefits (other than termination benefits)
which are payable after the completion
of employment.
 Post-employment benefits: defined
contribution plans:
(a) Under defined contribution plans:
the entity’s legal or constructive
obligation is limited to the amount
that it agrees to contribute to the fund
 Post employment benefits are provident
fund, gratuity, life insurance policy etc
are maintained by the companies for
their employees
(a) Defined benefit plan runs within the
companies
 The companies have a registered
provident fund scheme (Defined
Contribution Plan) for employees of the
company eligible to be members of the

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(b) Actuarial risk (that benefits will be
less than expected) and investment
risk (that assets invested will be
insufficient to meet expected
benefits) fall on the employee.
fund in agreement with the rules of the
provident fund constituted under an
irrevocable trust. All permanent
employees of those companies contribute
10% of their basic salary to the provident
fund and the company also makes equal
contribution.
 Employees of these companies are
entitled to gratuity (Defined Benefit
Plans) benefit after completion of
minimum five years of service in the
company.
(b) no valuation was done to quantify
actuarial liabilities as per the IAS 19
 Decisions: the sample companies follow IAS 19 partially in case some defined benefit
and terminal benefits plan but fully follow in case of short term benefit plans

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3.5.9. IAS 20 Accounting for Government Grants and Disclosure of
Government Assistance Compliance:
These companies are non-government entity and rarely got assistance from the part of
government. For this reason the companies doesn’t comply with IAS-20. Other reason for which
the companies fight shy this IAS provisions are given bellow –
1. No government grants ;assistance by government in the form of transfers of resources
to an entity ; are made in form of asset / income in the year 2013 among these
companies
2. No government assistance ; action taken by government designed to provide an
economic benefit specific to an entity ; are made in the year 2013 among these
companies
3.5.10. IAS 21The Affects of Changes in Foreign Exchange Rates
Reporting foreign currency transactions in the
functional currency requirements –
At the end of each reporting period:
1. foreign currency monetary items shall
be translated using the closing rate;
All the companies deals with functional
currencies in the following manner----
1. Foreign currency transactions are
accounted for at exchange rate
existing on the date of transaction.
Monetary assets and liabilities

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2. non-monetary items that are measured
in terms of historical cost in a foreign
currency shall be translated using the
exchange rate at the date of the
transaction; and
3. non-monetary items that are measured
at fair value in a foreign currency shall
be translated using the exchange rates
at the date when the fair value was
determined
denominated in foreign currencies at
reporting date are translated at rates
;existing on balance sheet date
2. Remain unmet by most of the
companies due to absence of non-
monetary transaction in foreign
currency
3. Remain unmet by most of the
companies due to absence of non-
monetary transaction in foreign
currency
 Decision: All of the elected companies follow IAS-21 requirements in case of dealing
with foreign currency except non- monetary trisection made on foreign currency.

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3.5.11. IAS 23 Borrowing Costs- compliance
IAS 23requirements Sample companies compliances
Recognition:
1. An entity shall capitalize borrowing costs that
are directly attributable to the acquisition,
construction or production of a qualifying
asset as part of the cost of that asset.
2. An entity shall recognize other borrowing
costs as an expense in the period of incurred
3. Entity shall begin capitalizing borrowing
costs as part of the cost of a qualifying asset
on the commencement date.
The commencement date for capitalization is
the date when the entity first meets all of the
following conditions:
(a) it incurs expenditures for the asset;
1. In the year 2013 companies capitalizes
borrowing cost; incurred in establishing new
projects
2. Borrowing Cost Borrowing costs are
recognized as expenses in the period in which
they are incurred unless capitalization of such
is allowed under IAS 23: Borrowing Costs.
3. Charges the cost (interest on loan) to revenue
account as financial expenses after
commencement of the commercial operation
of new projects.

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(b) it incurs borrowing costs; and
(c) it undertakes activities that are necessary to
prepare the asset for its intended use or sale
 Decision: companies whose are intended to take loan for establishing new project
obligate to this provision by capitalizing cost related to borrowing until the project is on
the operation. Companies; taking loan for other purpose rather than acquisition,
construction or production of a qualifying asset are also comply with this provision by
recording borrowing cost as financial expense
3.5.12. IAS 24 Related Party Disclosures- compliance
IAS 24 requirements Sample companies compliance
Disclose management personnel compensation in
total and for each of the following categories:
1. short-term employee benefits;
2. post-employment benefits;
3. other long-term benefits;
4. termination benefits; and
5. share-based payment
In 2013 all the companies disclose fully about –
1. salaries, bonuses, leave encashment
2. insurance premiums, healthcare premiums
,deferred-compensation arrangements,
pension and gratuity
3. long service leave
4. Nil
5. Nil
Discloser about related party trisections Sufficient discloser has been made in the year 2013

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about transactions made among parent; entities with
joint control or significant; subsidiaries; associates;
joint ventures in which the entity is a venture; and
other related parties.
 Decisions: All the companies comply with IAS 24 by giving sufficient discloser for all
the trisection relating with related parties.
3.5.13. IAS 26 “Accounting and Reporting by Retirement Benefit Plans”-
Compliance
IAS 26 is somehow correlated with IAS 16 and helps each other in case of reporting, recognizing
and setting structure of employee post- employment benefits. The elected pharmaceutical
companies fully company with both IAS provision in case of determining post-employment
benefits such as pension fund, gratuity payment, life insurance scheme benefits and differed
salary payments. The aspect based on which we are sure about the companies’ compliance with
IAS 26 are –
1. The companies recognize retirement benefit at fair value which is one of the
requirement of IAS 26
2. In case of marketable securities ; the companies carried them at their fair market value
3. financial statements of a retirement benefit plan for ether defined and undefined
contains all of the following information in the year 2013 ; which are recommended by
IAS 26—
 A statement of changes in net assets available for benefits

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 A summary of significant accounting policies
 An interpretation of the plan and the effect of any changes in the plan during
the period
3.5.14. IAS 27 “Consolidated and Separate Financial Statements”-Compliance
Verification
The companies whose are operating in a parent-subsidiary relationship are intend to consolidate
their financial statement as like as they are operating as a single company but with a different
entity. In the sample size; there some companies who are operate in several industries such as
Beximco and create consolidated –
 Statement of financial position
 Statement of comprehensive income
 Statement of change in cash flows
 Notes to the Financial statements and by this those companies reflect the some
requirements of IAS 27 such as –
1. reflection of relationship of the parent –subsidiary ;
2. consolidation of financial statements must present financial information about the
group as that of a single economic entity
The companies in their financial statement position represent about minority shareholder’s
interest under non-controlling interest in the year 2013 in case of when the companies doesn’t
fully take over their subsidiaries. Thus fulfill other requirements of IAS 27 –

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1. Recording non-controlling interest
2. Showing change in ownership interest
 Decision: so we can that the companies are fully docile in case of complying IAS 27.
3.5.15. IAS 28 Investments in Associates –Compliance
This IAS provision is applied only to treat investments that the 10 companies made in associated
parties and joint venture and the companies has a significant investment in associates through
purchasing about 20-50% of common outstanding share of associates.
In such types of investment there is no necessity to prepare consolidated financial statements.
Equity method should be adopted by the entity and initial investment should be recorded at cost
and this original cost need to be adjusted in later period for the contrition to gain/ loss earned by
associates.
The companies in 2013 has incurred different investments that they made in associated
companies dealing with other product line or divisions and they record and treat those incurred
investment on the light of IAS 28. The reason for which we are pretty sure about their
compliance are-
1. Associates are determined based on percentage of ownership scale of 20-50%
2. All investment made to Associates and joint ventures are accounted for using the equity
method

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3. Investment made to associates are recorded at the total cost incurred while making share
purchase of associates and investments are adjusted each period for pro-portion of gain/
loss from associates in the manner given bellow –
Demo:
A company purchase 22% of share of B Company and incurs a cost of 20000. B company
record a net income and dividend at that year of about 2000 take and 500 taka
successively. A company will record those in accordance with equity method because A
has significant influence over B.
Then A company will record acquisition of common stock as bellow –
 D
e
c
i
s
i
o
n
s
: So we can say that all of the companies follow IAS 28 in case of accounting
investment in associates.
Particulars Taka Taka
Investment made in B’s stock ----Dr
Cash -------------------------Cr
(To record share purchase)
20000
20000
Investment made in B’s Stock -----Dr
Income from B -----------------Cr
(To record share of net income from B)
440
440
Cash -----------------------------------Dr
Investment in B’s stock ------Cr
(To record share of dividend)
110 110

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3.5.16. IAS 29 Financial Reporting in Hyperinflationary Economies –
Compliance
This is IAS standard is incompatible in Bangladesh perspective because it belong out of the
boundary of hyperinflation because it face a reducing inflation rates rate overtime and has good
pricing index.
The reasons why Bangladesh industries are not obligate to follow IAS 29 is the mismatch
between Bangladesh economic scenario and IAS prescribed hyperinflationary economic
characteristics.
Characteristics Hyperinflationary economies described by IAS 29 are as follow-
1. The general population prefers to keep its wealth in non-monetary assets or in a relatively
stable foreign currency. Amounts of local currency held are immediately invested to
maintain purchasing power;
2. The general population regards monetary amounts not in terms of the local currency but
in terms of a relatively stable foreign currency. Prices may be quoted in that currency;
3. Sales and purchases on credit take place at prices that compensate for the expected loss of
purchasing power during the credit period, even if the period is short;
4. Interest rates, wages and prices are linked to a price index; and
5. The cumulative inflation rate over three years is approaching, or exceeds, 100%.
Characteristics of Bangladesh economic scenario-

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1. General people have a tendency of expending money rather than saving money. Only
11.23% of total population has intention to save money in term different non-monetary
forms
2. Most of the product price fabricated inside Bangladesh has price tag written in taka.
3. Sale or purchase is made mostly on cash and if made in credit then the price and payment
condition will be fixed by the both parties or other regulatory bodies.
4. Interest is determined by market demand or govt. Wage is determined by working
performance and price is determined based on quality and service.
5. Cumulative inflating rate is 44.5% for successive three year (2011, 2012, and 2013)
which is less than 100%.
 Decision: since Bangladesh is a developing country and doesn’t belong to
hyperinflationary economy; so the selected companies doesn’t adopt this IAS provision
3.5.17. IAS 31 Interests in Joint Ventures- Compliance
Since any of the selected companies has no percentage of ownership interest in other
companies in between 20-50%; there is no existence of joint-venture as well as no interest
related to investment made in joint venture. So the companies are not compelled to follow
IAS 31 provision.
The reason; proving a strong evidence against not complying with IAS 31; are given
bellow—

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The reason for which the companies doesn’t follow IAS 31 in year 2013
 The companies has no joint venture assets, liabilities, income and expenses which
are need are the main concern of the IAS 31
 There are no jointly controlled operational are run by those companies.
 No jointly controlled asset or shared facility are notified in the discloser of financial
statement in the year 2013
 All the establishment of a corporation, partnership or other entity has no joint
venture interest
 All the financial statement are prepared in a consolidated manner ( used in parent-
subsidiary relationship) rather than using proportionate consolidation method or
equity method ( to record investments; change in equity , income , expense made to
gain significant control over the investee)
 Since no joint venture relation exist among those companies; the transaction
between venture and joint venture are absurd here.
 Even any significant transfer ,sale and purchase of assets has not been notified in
2013 annual report in between companies with strategic and informal relationship
 Decision: the industry completely bypasses the IAS 31 provision due to absence of joint-
venture relation within the alignment of the industry.

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3.5.18. IAS 32 Financial Instruments: Presentation-Compliance
IAS 32 requirements Sample companies compliance
Financial instrument must include assets such as
1. cash/ cash equivalent ,
2. Term deposit
3. Trade receivable
4. equity instrument of another entity ( as
investment )
5. contractual right to receive cash or another
financial asset from another entity or to
exchange financial assets or financial
liabilities with another entity under conditions
that are potentially favorable to the entity
In 2013 ; asset as a financial instrument contains
the following items
1. cash and cash equivalents
2. term deposit
3. trade receivables,
4. investments in shares
5. No such types of item are disclosed in
financial statement
Financial instrument must include the following
liabilities-
1. contractual obligation
2. a contract that will or may be settled in the
entity’s own equity instruments
In the year 2013 the companies report the items ;
meeting with following two categories; as
follow-
1. trade payable
2. interest bearing borrowing

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Financial instrument must include the following
equity elements such as –
1. Share capital
2. All types of capital reserve
In the year 2013 the companies report share
capital, revaluation reserve, general reserve,
retained earnings etc under equity section of
balance sheet.
 Decision: The Company fully discloses all financial instruments according to the
guidance given by IAS 31 rule.

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CHAPTER 4
METHODOLOGY
THIS CHAPTER WILL COVER:
 The method through which we will collect , analyze , shot , and arrange data for
getting a good research outcome
 We also give a gist of what the topic on which we will conduct our research in later
period
 The sample size of the interested subject to conduct research will also be
determined in this chapter
 The name of the pharmaceutical firms ; that we chose as our sample; are mention
at the end of this chapter
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CHAPTER 4
METHODOLOGY
period
68 | P a g e
CHAPTER 4
METHODOLOGY
period

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4.0. Methodology:
Reports are prepared using various data and in processing the data various methods are used. The
basic method used in analyzing financial reporting disclosures is to scrutinize the Annual
Reports of the non-life insurance companies using checklists.
4.1 Data Collection and Analysis Procedures:
In Bangladesh many pharmaceutical companies are non-listed with the SEC and therefore their
shares are not traded in the DSE and CSE. Since they are non-listed companies, it is not expected
that those companies will prepared their Annual Reports on a regular basis, as well as they will
prepare it at all. For this reason, the listed companies have been used as the basis to work on.
In total there are 46 pharmaceutical firms of listed and non-listed category. Among these 46 are
listed companies. I chose 10 leading firm among those 46 listed firms as the sample of this study
and collect annual report of those selected companies respective annual reports ; published at the
end of the year 2012-2013. All of the Annual Reports are collected from the published Annual
Reports found in the pharmaceutical company’s websites. Some information has been collected
from the Journal of published by the Bangladesh Pharmaceutical Society (BPS).
I have prepared a detailed checklist and collected the required data from the Annual Reports of
the companies. The checklist has been filled up with the required data from those reports. After
collecting different field of data, I have calculated the qualitative and quantitative data based on
predetermined analysis tools used to analyze whether those companies are complying with IAS
by honoring BAS. Most of the relevant are presented in different graphical form since graphs
reflect the data more continently and vividly. Then I compared the companies with its own
reporting disclosures, other companies as well and IAS/ BAS standard to trace the area of

70 | P a g e
compliance and noncompliance of IAS in the entire industry. The number of disclosure made by
the pharmaceutical companies in the industry is compared with the other companies in the same
industry. Ultimate goal of all the effort is to conduct the inter industry analysis to justify
compliance of IAS /BAS in industry accounting practice.
4.2 Subject Matter of the Study
The subject matter of the study is about to justify whether firms operating in Bangladesh
pharmaceutical industry (belongs to life science category of comical industry; contributing 35 %
to this broader industry) comply with IAS in their accounting practice or not; if doesn’t comply
then provide explanation against non-compliance with IAS.
4.3 Sample Size of the Study:
listed companies. I chose 9 leading firm among those 46 listed firms as the sample of this study.
Sample size
16%
Sample Size for the Analysis
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Total DSE and CSE
enlisted firms
84%
Sample Size for the Analysis
70 | P a g e
Total DSE and CSE
enlisted firms
84%

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4.4. The Pharmaceutical Companies that We Chose to Conduct
Study on Compliance of IAS in Bangladesh Perspective
Since the pharmaceutical industry is prospering day by day and its area of operation expanding
across national boundaries; firm operating within it will face huge complexity in accounting
practice. As most of the countries are now adopting IAS as their accounting standards; the
domestic firm will face difficulty in reporting transaction once for Bangladesh perspective
(BFRS) and once for foreign countries perspective (IAS adopted or compliance BAS). To
resolve these hassle (difficulty in comparability and consistency); now a day most of the firm
adopt IAS besides using BAS. The pace at which industries in Bangladesh are adopting and
complying with IAS indirectly means that “BAS will be engulfed by IAS in near future.
The pharmaceutical companies; that we chose for the study; are all the leading firms in the
industry. The sample size of this study is 9 (that mean I will work on 10 top pharmaceutical
companies as a representative of comical industry (a broader industry)). So the name of 10
sample companies are-
1. Square Pharmaceuticals
2. Incepta Pharmaceuticals
3. Beximco Pharmaceuticals
4. Sun Pharmaceutical (Bangladesh) Ltd
5. ACI Ltd
6. Popular Pharmaceuticals Ltd.
Delta Pharma Ltd
7. IBN SINA Pharmaceutical Industry Ltd.
(IPI)
8. Radiant Pharmaceuticals Ltd
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5. ACI Ltd
Delta Pharma Ltd
(IPI)
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5. ACI Ltd
Delta Pharma Ltd
(IPI)

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CHAPTER 5
INDUSTRY RELATED KNOWHOW
 Pharmaceutical industries knowhow in global perspective
 Major functions and operation of pharmaceutical industry over the world
 Pharmaceutical industry growth, importance and contribution in macro perspective
 Global governing authorities who regulate the action of multinational pharmaceutical
firms
 Introducing Bangladesh pharmaceutical foot steps toward growth , domestic sufficiency
(in drugs ) and GDP contribution
 Little knowhow about Bangladesh drugs regulatory authorities
 Note down major DSE and CSE enlisted firms; playing good in this industry

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5.0. Introducing with pharmaceutical industry in both global and
domestic prospect
Before proceeding into the depth of the study we should know better about the subject matter and
all of its related aspect to find and go through a smooth, accurate and clear-cut ways of
conducting study on this industry. Because in every aspect we first justify an objects external
outlook then justify the internal aspect. So without knowing the industry; conducting study over
the internal aspect of the industry will be nothing but spending effort and time; which goes into
vain.
5.1. Pharmaceutical industry firms, its growth, importance and
contribution in economic growth in the global perspective
The global pharmaceutical market is highly aggressive and is full of entry barriers such as strict
regulations, high R& D cost and time-consuming in case of clinical trials. Besides, high research
and development costs, lengthy clinical trial processes, expiring patents and difficulty in gaining
product authorization from the appropriate regulatory bodies all directly mean that companies
must produce blockbuster drugs to sustain its position in the market. To ensure high growth in
the leading emerging markets; spending on generic drugs is required at first, which will
contribute to the increase in the share of generic spending. Branded products accounted for
nearly two-thirds of global pharmaceutical spending in 2011. However, as patents expire in
developed markets, that share is expected to decline. The growth is coming mainly from market
expansion in the leading emerging countries and from generics.

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The Top 10 best pharmaceutical companies in 2014 according to global perspective:--
1. PFIZER
2. NOVARTIS
3. HOFFMANN- LA ROCHE
4. JOHNSON & JOHNSON
5. MERCK & CO
6. GLAXO SMITH KLINE
7. SANOFI
8. ELI LILLY
9. ASTRA ZENECA
10. ABBOTT LABORATORIES
At a glance; the highlights of the global pharmaceutical industry is given bellow –
 The revenues from generics in 2016 are expected to reach USD 400 to 430 billion,
approximately 70% of which will be outside developed markets
 Global brand spending is forecast to increase from USD 596 billion in 2011 to USD in
between 615 to 645 billion in 2016.
 The highest growth in this market is being observed in Asia-Pacific
 Leading emerging countries will account for 28% of global spending on pharmaceuticals
by 2015, compared to 12% in 2005
 Over the next five years growth rate for emerging markets 15 % to 20%, and for matured
markets 6% to 10%
 The global pharmaceutical market will reach nearly USD 1200 million by 2016. Global
generic spending is expected to increase from USD 242 billion to USD in between 400 to
430 billion by 2016, of which USD 224-244 billion of the increase is from low-cost
generics in emerging markets.
 Blockbuster drugs (with a worth of $150 billion) to lose patents between 2010 and 2017.
 Cardiovascular and CNS are the two largest market segments, constituting nearly 38% of
the global generic pharmaceutical market together.
 Therapeutic segments such as Respiratory, CNS and Oncology are likely to witness
significantly high growth rates, attracting the attention of market participants.
 segments such as Diabetes and Genitourinary/ hormonal drugs are expected to decline
by the 2017

International Accounting Standard compliance analysis on nine pharmaceutical industries in Bangladesh

International Accounting Standard compliance analysis on nine pharmaceutical industries in Bangladesh

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