A THE BANGLADESH ccountant E BANGLADESH July - … The Bangladesh Accountant July - September 2011 |...

The Bangladesh Accountant

July - September 2011 | V

ol. 69 No. 42

THE A

UD

ITING

PROFESSIO

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Quarterly Journal of the Institute of Chartered Accountants of Bangladesh

THE BANGLADESH July - September 2011

QuQQ auu rtrr erlrr yll Journal of the Institute of Chartrr ererr d AccoAA untantstt of BaBB naa glall desh

THE BANGLADESH July - September 2011

Accountant

EDITORIAL BOARD

The Bangladesh AccountantThe Bangladesh AccountantQuarterly Journal of the Institute of Chartered Accountants of Bangladesh

Published by the Editorial Board of the Councilthe Institute of Chartered Accountants of Bangladesh (ICAB)100 Kazi Nazrul Islam Avenue, Dhaka 1215Tel : 9117521, 9112672, 9115340, 9137847Email : [email protected] : www.icab.org.bd

Designed & Printed By :

Editorial 2President’s Desk 3

ARTICLESThe Auditing Profession in Bangladesh: 5 Turning the tide- Dr. Javed Siddiqui

Audit Quality Control Standards in 8Bangladesh - is ICAB doing enough?- Sohel Kasem FCA

Special Leadership Intervention 15- Akhter M Chaudhury FCA FCS

Non compliance of laws and International 19Accounting Standards may create confusionabout genuineness of financial statementsof banks- Md. Shahadat Hossain FCA

Disclosure Requirements in Annual Reports 22by the Listed Banking Companies:Cases from Bangladesh - Md. Mahabbat Hossain

Don't mind the Contradictions: IAS 17 Lease 44- Dr Muhammad Nurul Houqe - Emma Jayne Laird

An Overview On Draft 48Value Added Tax Act 2011- Abdul Khalek FCA

How to Build Your Business Advisory 53Practice Management Tips for SMPs - Stuart Black, Member, IFAC

Assessing the Current Stockmarket Correction: 57The Case of Bangladesh- Ifty Islam

Unstable stock market needs fast track 63action plan- Muhammad Jalal Hussain

Empowering Excellence 67- Ms. Rubaba Ferdous

Corrigendum 70

ICAB News 71

Chairman

Akhter Matin Chaudhury FCA

Editor

Harun Mahmud FCA

Members

Md. Abdus Salam FCAAkhtar Sohel Kasem FCAAzizur Rashid FCAMasih Malik Chowdhury FCAM. Farhad Hussain FCAMd. Humayun Kabir FCAMd. Shahjahan Majumder FCAAmanullah Khan FCAFazle Rabbi Mohammed Hasan FCAMd. Nurul Haque FCAKazi Ehsanul Huq FCAKanai Lal Saha FCAMd. Harun-or-Rashid FCAMd. Akbar Hossain FCAMd. Moniruzzaman FCAM. Abu Bakar FCAMohammed Jashim Uddin FCAAbu Muhammed Saiful Islam FCAMd. Abid Hossain Khan ACAKishower Amin ACAShafiq Musharrof ACASujit Kumer Das ACAZareen Hosein ACAChairman – DRC-ICABChairman – CRC-ICAB

Member Secretary: Secretary-ICAB

N I Chowdhury FCA

CONTENTS ISSN 1993-3649

"The opinions expressed in this publication are those of the respective authors themselves and do not necessarily reflect the views of the Editorial Board of the Institute of Chartered Accoun-tants of Bangladesh (ICAB) or the ICAB itself."

DISCLAIMER

ORIALEDIT

There was a time, in the not too distant past, when the integrity of professional accountants came under a shadow because of the alleged malfeasance of a few. Perception become reality and, as with all hysteria, all accountants, particularly in practice, were most unfairly tarred with the same tainted brush. Efforts by the Institute of Chartered Accountants of Bangladesh (ICAB) to prevent erosion of confidence of the public in its members and their professionalism and objectivity began many years ago. Progress has been slow. It was an uphill battle, often obstructed or even thwarted by the unscrupulous, exploiting the imperfections of legal and regulatory processes.

It is indeed to the great credit of the leadership of the Institute of Chartered Accountants of Bangladesh that over the last few years they have doggedly persisted in their attempts to improve standards of education and training of the profession in order to raise the quality of its membership to global levels. The twinning project with ICAEW is but one such

initiative, albeit a major one, which has elevated the curriculum and examinations to global standards. The full fledged setting up and functioning of the Quality Assurance Department (QAD) has on the other hand introduced a mechanism through which professional standards can be monitored and upheld.

It is the QAD of ICAB that seems to have recently attracted much global attention as it was a matter of common scepticism that such a function could effectively be introduced in a developing country such as Bangladesh, with its undeveloped and weak regulatory and legal regime. Not only is the QAD seen to function effectively but the response from the profession as a whole has been overwhelmingly positive. Professionals, firms and practices have demonstrated a genuine desire to improve their quality and have found the QAD a resource keen to help. The QAD functions as much as a ‘quality facilitator’ as a ‘quality monitor’.

Over the last few years public perception has shifted in favour of the profession. Chartered accountants are not viewed with suspect integrity. Their services are given more value and better remunerated. There is of course the occasional transgressor but, since the Institute of Chartered Accountants takes effective action and disciplines them, respect for it has grown, both within and beyond the profession. Future leaders of the ICAB should pursue even higher standards of professional ethics, integrity and quality to retain and enhance this hard earned and precious reputation.

Perhaps the tide has truly turned at last.

July - September 2011 The Bangladesh Accountant2

Akhter M ChaudhuryChairman, Editorial Board

Capacity Building of theAccounting Professionin Bangladesh

The Bangladesh Accountant July - September 2011 3

PRESIDENT’S DESK

Bangladesh, an emerging economy on track to become a middle income country by 2015 has many opportunities for accounting professionals. There are also many challenges to overcome in providing services in an economy shifting towards a higher growth trajectory. The Institute of Chartered Accountants of Bangladesh (ICAB) has an enormous role for capacity building of the profession to remove country’s development impediments and ensure sustainable growth of the country. ICAB is strengthening its institutional capacity to assist its members and students and to provide confidence to its stakeholders.

In Bangladesh, the present demand for services of Chartered Accountants (CAs) far exceeds it’s supply. ICAB is implementing reforms and proactive action plans to increase its membership by attracting more quality students. The Institute was established in 1973 with 78 fouding members. Over the next thirty-eight years, its membership increased to only about 1300, and included a meager 38 female members. After accounting for about 200 members currently working abroad and those who have retired

or passed away, only around 1000 chartered accountants are active at present in Bangladesh. According to an article by J. Ahmed, “Roadmap for Accountancy Profession in Bangladesh” published in the Financial Express in 2006, Bangladesh required 12,000 CAs to accommodate the needs of its growing economy with booming banking, insurance and other service sectors. Using an annual compounded growth rate of 5%, this estimated number easily reaches the 15,000 mark by 2011. It is noteworthy that a result of the ICAB’s effort to increase membership was that the largest contingent of newly qualified CAs in ICAB’s history received certificates at the 19th convocation in October 2011. 192 newly qualified CAs from the last six exam sessions, about 15% of total ICAB membership, were awarded certificates at the convocation.

Over the past several years, the ICAB has been working towards modernizing its curriculum and examination processes. In 2008, the ICAB adopted the Strategy Document 2008-17 to raise itself to global standards following the model of the Institute of Chartered Accountants of England and Wales (ICAEW). In 2009, ICAB signed an MOU with the ICAEW to initiate

strategic implementation of the document through a twinning project funded by the World Bank. New curriculum has been introduced, examination procedures has been simplified and improved. Old stream students are taking the convergence courses and exams. The implications of signing the MOU with ICAEW is far fetching for the newly qualified CAs opening gateway to global opportunities. Today, members of the ICAB can become ICAEW members after passing only three paper exams and completing ICAEWs Structured Training in Ethics. ICAB is also expecting reciprocity agreements for its members with other renowned Institutes in near future.

The Institute is focusing internally to strengthen its governance structure, Secretariat, Continuous Professional Development (CPD) seminars, workshops and trainings. It has established the “Quality Assurance Board” (QAB) and sent the board’s senior management team for training to the UK in 2011. As a member of IFAC, ICAB is obligated to adopt and disseminate the knowledge and application of Accounting Standards issued by International Accounting Standards Board


(IASB). Since July 2011, ICAB has introduced International Financial Reporting Standard (IFRS) training courses. ICAB acknowledges the assistance of the Government of Bangladesh and the World Bank for the “IFRS Training of Trainers” in the UK and Malaysia under twinning arrangement with ICAEW.

A major focus of ICAB’s continuing education efforts are on the Small and Medium Practices (SMPs) and Professional Accountants in Business (PAIBs) as well as on IT and English skills. As in the rest of the world, small-medium practices (SMPs) consist of almost ninety percent of the professional market in Bangladesh. As they lack adequate

technical and human resources ICAB emphasizes on adequate training of SMPs to equip them for providing quality services and to move forward. PAIBs require ongoing training for effective decision making, negotiation and change management skills. IT and English language skills enable accountancy professionals to be effective communicators and assist in faster career progression.

We are at crossroads of the profession. Accountancy profession in Bangladesh has grown to support the evolving business and economic climate. ICAB is committed to foster an environment where not only more CAs qualify but where all qualified Chartered Accountants are able to

provide their services effectively. ICAB is committed to professional excellence, increasing its membership, instilling confidence among its and creating global opportunities for ICAB’s members through continuous capacity building.

Parveen MahmudPresident, ICAB


In 2006, the International Federation of Accountants (IFAC) issued seven statements of membership obligations (SMOs) to assist ‘high quality performance by professional accountants’. The member bodies of IFAC, which includes national accountancy bodies from most of the countries in the world, were required to give their best efforts to abide by the SMOs, and failure to do such without satisfactory explanations would result in suspension or removal of membership. The seven SMOs issued by the IFAC covered areas such as audit quality, audit education, code of ethics for professional auditors, disciplinary procedures to be adopted by national auditing bodies, adoption of International Standards on Auditing (ISAs) and International Financial Reporting Standards (IFRS), and accountability and auditing in the public sector.

Like many other researchers and academicians in this area, I was also initially sceptical of the applicability of these SMOs in a less developed country (LDC) such as Bangladesh, given that these mechanisms, developed in the

IFAC’s globalisation attempts in LDCs:A success story?

Dr. Javed Siddiqui

context of developed economies, would only work under assumptions of an efficient capital market, higher investor sophistication, and presence of effective second order institutions (such as efficient regulators, judiciary, et al) that would complement such governance schemes. However, a few years down the line, it appears that some of these globalisation attempts are actually producing results that might change the image of the accountancy profession in this impoverished yet economically promising nation.

As part of Institute of Chartered Accountants of Bangladesh’s (ICAB) attempts to comply with the IFAC quality control requirements, a quality assurance department has been established. Regular visits are now being made by the ICAB’s quality assurance team to different audit firms across the country to ensure that their audits are of the standards set by the IFAC. The visits include comprehensive scrutiny of some sample audit working papers. This is important in the context of Bangladesh, as the poor quality of audit work performed especially by small audit firms has been a concern. Also, an audit

'the article was originally published in The Financial Express in July 2011. A slightly different version of the article, published in The Business and Economy Magazine in India is available in IFAC's website http://press.ifac.org/article/2011/08/ifac-s-globalization-attempts-in-ldcs-a-success-story '.

IN SPITE OF THE

ENTHUSIASM AND

EAGERNESS

DEMONSTRATED BY

PROFESSIONAL

INSTITUTES IN LESS

DEVELOPED

COUNTRIES (LDCS) TO

ATTAIN GLOBAL

RECOGNITION, THE

SOCIO-POLITICAL AND

LEGAL SYSTEMS OF

THESE COUNTRIES

MAY STILL POSE

SIGNIFICANT THREATS

TO THE ATTAINMENT

OF IFAC’S VISION FOR

A GLOBALISED

AUDITING

PROFESSION


manual has been produced and regular workshops are being arranged by the ICAB to create awareness regarding audit quality in Bangladesh. The ICAB members involved with the quality assurance programme appeared enthusiastic regarding the level of cooperation received from the audit firms.Another significant development towards compliance with the IFAC standards has been the area of audit education and training. In 2008, a World Bank funded project helped the ICAB to enter into a twinning programme contract with the Institute of Chartered Accountants of England and Wales (ICAEW). The ICAEW worked closely with the ICAB between 2008 and 2009 to improve the curriculum, overseeing and monitoring reform in the education and training system. Once the project is completed, members of the ICAB will have the opportunity to secure memberships of the ICAEW subject to cer-tain conditions. This global recognition has, perhaps, given the auditing profession in Ban-gladesh the greatest opportunity to present itself to the world as skilled, competent and ethical professionals who are capable of working in the largest audit firms and corporations in the world. This is probably the reasons why the ICAB seems to have taken this project with utmost seriousness, and decided, despite its limited resources, to continue funding the twinning arrangement with the ICAEW even after the World Bank funding stops.

Other significant developments for the pro-fession include the adoption of the IFAC code of professional ethics, and the adoption of the IFRS. Bangladesh has been one of the very few countries in the world to have adopted the IFRS for the small and medium enterprises. This is significant for a country where the corporate sector is characterised by the presence of large number of SMEs, and will help ensure

accountability in this sector.

As part of the compliance programme, every member body of the IFAC is required to submit progress report through a questionnaire response. The ICAB’s sincere effort in Bangladesh implies that Bangladesh is likely to tick most of the right boxes. However, there are still a number of significant risks and challenges for implementing the IFAC SMOs. Despite the good intentions and efforts of the ICAB, the accountancy profession still has to operate within the sociopolitical environment in Bangladesh. This means that efforts to selfregulate the profession are still likely to be affected by the painstakingly time consuming judicial process, which would make any disciplinary actions initiated by the ICAB largely inactive.

Also, the profession has to deal with the government regulators, who are not always entirely competent, and have the knack of undermining the role of the ICAB. There was even a recent attempt to take away the standard setting powers of the ICAB, but fortunately, common sense seems to have prevailed. The high degree of ownership concentration in the Bangladeshi corporate sector is another cause of concern. Family domination in the mainstream business sector has led to the


The Author is Faculty of Accounting,Manchester Business School

development of a corporate culture where the members of the board, generally from the same family, are not always convinced of the value of external auditing. Rather, audit is sometimes viewed as a mere regulatory requirement. As a result, the companies are not willing to pay higher audit fees, which, in turn, affect audit quality. Although the twinning project with the ICAEW will resolve some of the issues relating the quality of accountancy education, the standard of accountancy and auditing education offered at the undergraduate levels still remains a concern.

However, despite such concerns, the IFAC would be generally happy with

the contribution they have made in the development of the auditing profession in emerging economies like Bangladesh. However, as the above discussion suggests, there is still a lot to be desired. In spite of the enthusiasm and eagerness demonstrated by professional institutes in countries such as Bangladesh to attain global recognition, the sociopolitical and legal systems of these countries may still pose significant threats to the attainment of IFAC’s vision for a globalised auditing profession. IFAC, therefore, needs to devote more attention regarding the ground level realities of these countries, and perhaps encourage further reforms to create proper environments in emerging economies for the auditing profession to be nurtured. Otherwise, the apparent progress made through the compliance programme may prove to be ineffective due to problems encountered at the implementation stages.

There were times when the Bangladesh public accountancy profession used to draw a lot of criticism from the company directors, researchers, and popular press for their perceived failure to do their job as auditors properly –

the quality of audited financial statements were questionable, and the role of the ICAB in disciplining its members was challenged. Thanks to the IFAC compliance programme, the image of the profession has begun to change. The IFAC compliance programme has, at least, provided the ICAB with the muchneeded impetus to change the face of the profession in countries such as Bangladesh. Bangladesh is striving to become a middle income country by 2021 and needs a strong capital market to facilitate private sectorled growth. A welldeveloped and skilled auditing profession is going to be one of the cornerstones to complement such growth, and the IFAC compliance programme may have given it the momentum that it needed for a long time.


Introduction

“The times - they are a changing” - Bob Dylan probably did not have auditors in mind when he penned the lyrics for this memorable piece many years ago, but his words might just have applied to auditors and the auditing profession also. Much has changed in the last 10-15 years, triggered by Enron and the like, the adoption of IFRS by large parts of Europe and North America, the increasing monitoring role of IFAC and governments all over the world in an effort to self-purify us from the angst caused by financial debacles rendering thousands of investors penniless and regulators clueless. This was then followed by the global financial meltdown in 2008-09, but this was more to do with the role played by the banks, not by accountants and auditors.

And as usual, the auditors have come in for some stick. Closer to home, Satyam in India did not help our case and in our country too, we see our regulators, newspaper columnists and talk show pundits all having a swipe at us for our alleged misdeeds post the stock market debacles. Indeed, the expectations of the society around us seem to have changed drastically.

Turning the Tide

The auditing profession frequently comes in for criticism despite the advancements and hard work we do. Our good work is often overlooked, much like Marc Antony’s tribute to Julius Caesar – The evil that men do lives after them; the good is oft interred with their bones. Or as John F Kennedy once said about the US Secret Service - Your failures are trumpeted, and your successes unknown.

Quite simply put, we are remembered for all the wrong reasons and so it was a surprisingly refreshing experience to read Dr Javed Siddiqui’s article in a recent issue of an international magazine appreciating the hard work done in recent years by the Institute in uplifting the standard of the audit profession in this country, its MOU with the ICAEW and the work currently being done by the Quality Assurance Board (QAB) of ICAB.

This article will discuss how ICAB is meeting these challenges and the detailed aspects of how the quality control functions are addressed by the Quality Assurance Board - its plan of action and work done so far.

Raising Audit Quality Control Standardsin Bangladesh - is ICAB doing enough?

Sohel Kasem FCA


Audit Firms licensed to operate in Bangladesh

ICAB holds the right to issue practicing licenses to members and firms to carry out Audit and Assurance services in this country. As of July 2011, the number of partnership audit firms authorized by ICAB stood at 86, while the number of proprietorship firms was 85, making a total of 171 firms. The number of members in practice was 329 and the number of members not in practice, i.e. in jobs, directorial positions, management, etc. was 769.Issuance/renewal of Certificates of Practice is done annually by ICAB and requires strict adherence to (a) attaining a minimum number of 20 Continuing Professional Development (CPD) hours through attendance at professional seminars, conferences and workshops; and (b) satisfactory results of visits by the Quality Control Department of ICAB.

What are the ICAB’s regulatory quality control processes?

The responsibility for issuance of Certificates of Practice to auditors rests with ICAB. In a bid to address the quality control issues and also to upgrade the quality of services generally, ICAB has recently set up a Quality Assurance Board (QAB). The Council/QAB has embarked on the following programs:

• Formed a Quality Assurance Board and given it the status of a Standing (i.e. Permanent) Committee, headed by a Past President of the Institute, and reporting directly to the Council

• Adopted the SMO -1 (Statement of Membership Obligations) issued by IFAC on Quality Control and IFAC is regularly monitoring the progress of ICAB

in the implementation of the SMO, and so far they are well satisfied with the progress achieved by ICAB

• Adopted the International Standard on Quality Control – ISQC 1 -(as BSQC 1) in 2008 as part of compliance with IFAC SMO 1, as the benchmark for Quality Control Standards in Bangladesh

• Established a Quality Assurance Department (QAD) in 2008, largely at the initiative of the then President, Mr. Humayun Kabir, reporting to QAB for carrying out the detailed work in accordance with an approved methodology

• Adopted a Quality Assurance Visit Manual, designed checklists for evaluating firms’ procedures for quality control, cold file review, whole firm review, etc. closely mirroring the regulations and processes followed by ICAEW

• ICAB prepared and distributed an Audit Practice Manual (APM) in 2009 to all its practicing members during the term of the then President, Mr. Nasir Uddin Ahmed. This Manual was prepared jointly with ICAEW

• Conducted a number of workshops in 2009 and 2010 for all practicing members on use of APM at Dhaka and Chittagong (5 in Dhaka and 2 in Chittagong)

• Initiated quality control visits to audit firms on a phased basis from 2010 – listed company auditors in Phase 1 and visits to all other firms from 2011 onwards

• Contemplating actions against those firms with unsatisfactory results arising out of the QC review

The QAD functions directly under the control and guidance of the QAB, which meets at least once every quarter. The present staff strength of QAD includes 2 qualified Chartered

AS OF JULY 2011,

THE NUMBER OF

PARTNERSHIP AUDIT

FIRMS AUTHORIZED BY

ICAB STOOD AT 86,

WHILE THE NUMBER OF

PROPRIETORSHIP FIRMS

WAS 85, MAKING A

TOTAL OF 171 FIRMS. THE

NUMBER OF MEMBERS

IN PRACTICE WAS 329

AND THE NUMBER OF

MEMBERS NOT IN

PRACTICE, I.E. IN JOBS,

DIRECTORIAL POSITIONS,

MANAGEMENT, ETC.

WAS 769.


Accountants and a part qualified support staff. The head of this Department is Mr. Mahbub Siddique, ACA and he holds the title of Senior Deputy Director, Technical. ICAB has adopted the ICAEW model for Quality Assurance and we have been trained by the QAD of ICAEW in this area. Moreover, Mahbub was also sent by ICAB to ICAEW offices in London in July 2011 for 3 weeks to gain firsthand knowledge and experience in the way that QAD Reviewers of ICAEW function. He was seconded to the ICAEW team to visit the audit firms on live visits and also invited to observe the proceedings of the Disciplinary Committee hearings of the ICAEW.

What procedures are followed by the QAD

The QAD work starts after all practicing firms submit an Annual Return containing the firm’s profile (introduced in 2009), summary of clients, numbers of qualified and part qualified staff and students, and other relevant information. This information covers the calendar year (Jan – Dec) and is due by 15 February the following year. In accordance with the directives of the Council who keep a close eye on the submission, no Practicing Certificates are issued or renewed without the submission of the Annual Return. It may be mentioned that in 2011, 27 Practicing Certificates were not renewed because of failure by these audit firms to submit such Annual Returns.

The next step involves a selection of firms for visits by the QAD Reviewer. The QAB policy was that in the first Phase, started in 2010, firms with Public Interest Entity (PIE) clients would be reviewed first, since this is the area of maximum risks for investors, banks and the general public. PIE

definition includes listed companies, banks, insurance, financial institutions, state owned companies and corporations and NGOs (which is also defined clearly in the Annual Return Form 2010). Files of audit clients are selected for visits by the Reviewer on the basis of the ICAB Visit Manual and the ISQC 1 requirements. A Checklist, earlier prepared and approved by the QAB, is used by the Reviewer for this purpose and the following key areas are covered:

Leadership – highlights the responsibility of the Partners to maintain adequate quality control procedures in performing audit engagements (Lead the firm from the top - giving consistent messages on the importance of quality control)

Ethical Requirements – to establish written policy on ethical requirements including annual confirmation of independence and ICAB requirements (Always act ethically in accordance with the relevant standards and pronouncements)

Acceptance and Continuance of new and existing clients: to develop written procedures on acceptance and continuance of new and existing clients and maintain those procedures in addition to ICAB’s specific requirements in this regard (Focus on the right clients being matched by the right skills with emphasis on integrity and competencies)

Human Resources – to develop written policies on recruitment, training, compensation, skills, competence, ethical requirements, appraisals, etc. (Maintain capable and competent staff giving due attention to the firm’s human resources policies and procedures)

Engagement Performance: to develop quality control procedures and apply in appropriate manner for ensuring quality in audit and assurance service (Deliver quality audits consulting when needed and meeting requirements for engagement quality control review)

Monitoring: to develop a monitoring system of quality control of the firm (Monitor the firm’s system of quality control and carry out a periodic objective inspection of a selection of completed audit engagements)

Documentation: to establish a well organized documentation procedure and maintain the permanent and current working files (Document the operation of the quality control system so that the firm complies with BSQC 1’s documentation requirements)

In line with the procedures for firm visits, 15 days prior notice is given to the firms for such visits. The


visits are carried out in a very professional manner and all findings are discussed with the firm’s partners prior to completion of the visit. Following an internal review by the QAD, the reports are then issued to the respective firms and a written response is requested on the actions which the firm plans to initiate to address the shortcomings.

QAD classifies the results of the visit as either Satisfactory or Unsatisfactory. A Satisfactory rating means no immediate action is required and the firm will be covered again in the next cycle of visits, usually 3 years from the date of the last visit. An Unsatisfactory rating triggers a different set of actions – the firm is given a second opportunity to demonstrate improvement. A follow up visit is made, usually 6 months later, and if the results still do not meet the requirements, the case is then referred to the Investigation & Disciplinary Committee (IDC) by the Council for necessary action as per the Institute’s Bye Laws.

In 2010, for example, all the audit firms with listed clients (total 45) were covered and based on the final results, 8 firms were referred to the IDC by the Council, where investigation and disciplinary proceedings are currently in progress.

In 2011, a total of 41 visits have been carried out so far, against a planned target of 60 visits, out of which 15 were follow-up visits of 2010 and 26 firms were visited for the first time and on an ongoing basis, appropriate action is being taken based on the results of such visits.

Remaining firms are expected to be covered by end 2012.

FAQs

One of the most common enquiries made by both local and foreign investors wishing to invest in this country is the quality and reliability of the financial statements which are used to make investment decisions. Frequent questions that we are asked by them are:

• how reliable are the financial statements that they are looking at

• do they comply with the international accounting standards

• is the audit opinion reliable

• what auditing standards are used

• how good are the oversight processes on the work done by the auditors

• what are the regulatory quality control processes

It is not easy to answer all these questions to the full satisfaction of the enquiring investors and the various stakeholders, but this article will attempt to provide some answers.

What are the regulatory requirements for preparation of the financial statements?

Companies in Bangladesh are classified as either public limited companies or as private limited companies depending on the amount of paid up share capital. It is hard to cite the actual number of companies in existence, but some estimates put this figure at around 60,000, of whom only about 15,000 are active companies. There are about 260 public companies, including banks,

insurance and leasing companies listed with the stock exchanges in Dhaka and Chittagong.

The Companies Act, 1994, does not mandate the use of international accounting standards in the preparation of the financial statements and the disclosure requirements contained in Schedule XI of the Act are pretty much outdated in the context of present day requirements. However, in addition to the Companies Act, 1994, listed companies are subject to the following regulations:

• compliance with international accounting standards

• Bank Companies Act, 1991, if applicable

• Insurance Act, 1938, if applicable

• Income Tax Ordinance, 1984

• The Value Added Tax Act, 1991

• The Customs Act, 1969

• Securities and Exchange Commission Rules, 1987

• Pronouncements of the Institute of Chartered Accountants of Bangladesh


The SEC requires that all listed companies must:

• follow all international accounting standards; and

• be audited by a partnership firm of auditors

SEC also periodically reviews the audit reports of the listed companies and identifies cases of non-compliance with the international standards. Non compliance often results in cautions and fines, both against the companies as well as the audit firms.

Bangladesh (Central) Bank, in addition to the SEC requirements, requires that auditors of listed banking and non banking financial institutions have to be selected from the Grade A list prepared by them after a rigorous scrutiny process and field visits to the audit firms. They also require compulsory rotation of audit firms every 3 years.The ICAB requires that the auditors report on compliance with all the applicable international accounting standards (adopted in Bangladesh as Bangladesh Accounting Standards – BAS and Bangladesh Financial Reporting Standards -BFRS) as well as comply with all the applicable international auditing standards – BSA).

There are therefore a number of strong regulatory and legal requirements for the listed companies to adopt and comply with the requirements of the international accounting standards, as adopted in Bangladesh.

However for non-listed and private limited companies, the situation is quite different. There is no requirement in the Companies Act to follow such standards and they also do not fall within the purview

of the requirements of SEC and other regulatory agencies. There is no requirement for appointment of partnership firms as auditors. As a result, the monitoring and oversight procedures for these companies leave sufficient room for improvement. All that is remotely available are “best practice” recommendations of ICAB to adopt such standards, but it would be quite fair to say, in my opinion, that these companies are pretty much out of the net of the regulatory requirements, except the disclosure requirements of the Companies Act, 1994 which, as I have already pointed out earlier, is quite out of date and needs urgent revision.

Best Published Accounts Awards

The regional body of accountants, SAFA, as well as the local Institutes of Chartered and Cost & Management Accountants, have been awarding prizes to the best published accounts of listed companies in their respective countries for the last 8 years or so. This has helped tremendously to

raise the standard of presentation and disclosures in accordance with IAS/IFRS and has sparked a healthy competition among the listed companies. The last round of awards in 2010 saw 9 companies (from 11 entries) from Bangladesh winning top awards at the South Asian level, beating off stiff competition from Pakistan, India and Sri Lanka. How good are the oversight processes over the work done by the auditors?

Oversight of the work done by the audit firms is often an issue. ICAB has adopted a number of international auditing standards – as BSA – and has suggested that these be used for all. However, in practice, the overall requirements and standards are pretty much the same as the accounting standards – for listed companies, there are a number of regulatory requirements but for non listed and private companies, there are no mandatory requirements. Consequently, there are allegations of uneven standards used by audit firms. The bigger firms, and

certainly the representatives of the international firms, have robust controls in place, though for smaller firms this may be prove a bit difficult.

Defining audit quality is difficult. One view of audit quality is whether the auditor has given an appropriate audit opinion, as evidenced, perhaps, by the absence of audit failures. A narrower view of audit quality is whether auditors have done all that is required of them. In today’s world, there is a need for more focus on qualitative issues such as the quality of judgments, training, internal reviews, feedback from shareholders and audit committees and other factors affecting the quality of auditors (in terms of their experience and competence), their behavior, and external perceptions.

Role of the government

So far there have not been any formal or defined procedures for government intervention or oversight by the government over the work done by the auditors. Occasionally, the SEC has sought explanations from auditors and

companies over the application of the accounting and auditing standards of the listed companies.However, the government is thinking of setting up a Financial Reporting Council (FRC) under a Financial Reporting Act. This was initiated during the time of the caretaker government but has not yet been enacted. The proposed Act requires auditors of publicly listed companies and Public Interest Entities to register with the FRC and also requires the FRC to oversee the work done by the auditors of such entities. FRCs are already in existence in other countries like the UK and Sri Lanka. They have a wide range of powers including setting standards but their main function is the oversight function.

It is of course not possible to comment at this stage on the proposed Act and the role of the FRC, since the FRC has not yet been enacted, but once the Act is introduced, it will be possible to comment on the role of the FRC and the effect it will have on the work done by the auditors of the public interest entities.


Role of SAFA in Quality Control Procedures

All SAFA member bodies are also members of the International Federation of Accountants (IFAC) and are therefore obligated to comply with the requirements of Statement of Membership Obligations 1 (SMO I) on Quality Control to establish necessary systems to achieve compliance with such requirements.

The member bodies of SAFA, that regulate the accountancy profession in their respective jurisdictions, have a responsibility to adopt 'ISQC1' (subject to local considerations) and establish and implement a System of Quality Control that encompasses policies and procedures, including but not limited to periodic reviews of firms’ audit work, designed to provide reasonable assurance that their members engaged in audit practice are doing so in line with the relevant Rules, Regulations and professional standards. Such a system should ensure that failure to comply with relevant quality control standards should render the firm and its personnel to appropriate sanctions and penalties.

The quality assurance review system of ICAB is also aligned with the requirement of SAFA Framework of Quality Control Review (QCR) Program which is basically prepared in line with the SMO 1 and ISQC 1.

To be updated with the requirements of SAFA QCR Program, periodic meetings and discussions are conducted among the relevant committee of SAFA member bodies on regular basis.


The Author is a former President of theInstitute of Chartered Accountants ofBangladesh (ICAB) and the currentChairman of ICAB’s QualityAssurance Board

Conclusion

With the activities and interests of investors, lenders and companies becoming increasingly important, the need for a high quality financial reporting framework consistent with international standards, coupled with a similar high level of audit standards is absolutely vital for raising the profile of financial reporting. Already we are seeing the effects of this in the capital markets where basic financial fundamentals are not always available or even if they are, they are not being relied upon, causing severe turmoil and very adverse effects on the overall economic growth.

The regulators have a big role to play in ushering in a fair, transparent and dependable financial reporting system. The Institute of Chartered Accountants and the auditors licensed by them have an even greater responsibility of ensuring the truth and fairness of the financial statements that they are attesting. Proper remuneration also has to be ensured to the professional firms of auditors to enable them to do their job properly. Audit fees in Bangladesh are among the lowest in the world acting as a major disincentive to doing good quality work. Most importantly, it is no use introducing new and better standards, laws and regulations if

their enforcement is not guaranteed by the authorities. Although much progress has been made in the last few years, the road ahead is very challenging and needs a concerted, focused plan of action with the active involvement of all the key players concerned.


This is yet another article in a seemingly interminable series of writings on the much hyped subject of Leadership. At this level of attention there is a danger of it being relegated to cliché status. Paradoxically, any less attention could condemn the subject to sad indifference and poor note, which would be most unfortunate as the need for leadership is critical, particularly during current times.

A natural question that arises is “Exactly what do we mean by Leadership?” Is there a universal definition? After all, the perception of Leadership has been different at different times as different circumstance prevailed. Is it not strange that leaders seem only come to the fore during a crisis rather than in good times? Do we really need leaders except in a crisis? Is there no role for leaders in the good times? Is there indeed a need for leaders when all is well? If so, how does leadership in a crisis differ from that when all is (apparently) well? This article will attempt to address these issues and other questions that may dwell in the minds of those who ponder.

So much has been written about Leadership that I am almost embarrassed to add to the vast litany. Yet I feel I must, as I would like to add a new perspective to

the discussions and debates on the role of leadership at different times. I must hasten to add that this article is not about political or military leadership. I shall focus instead on the role of Business Leadership at critical junctures of the economic cycle.

While any discourse typically starts with a definition of the subject, I will not oblige. It is a term difficult to define, often subjective and applicable to specific situations and therefore of limited general use. I will instead focus on certain dimensions of Leadership and their applicability and value. I say with due humility but fair assertion that my studies on Leadership, though not comprehensive and perhaps not even extensive, are nevertheless significant enough to dare venture into a dissertation on it. These studies include John Adair’s “Inspiring Leadership”, from which I have drawn some of the context.

While harbouring no pretence to great leadership itself, I confess that I vie to it someday. The experiences here are therefore not all my own but of others gleaned from the extensive literature on the subject. The analyses and the propositions are however entirely mine – based on my own studies of the subject and many hours of reflection aided by several decades observing, reading about

Special Leadership InterventionAkhter M Chaudhury FCA, FCS


and trying to emulate the good and the great. No one other than I should be the object any derision that this petty prose may provoke.

It is said that the need for Leadership is greatest in a crisis. I would take fundamental issue with this widely held view – but more on that later. Meanwhile, let us look briefly at the history of Leadership.

Leadership and Military Leadership were synonymous in antiquity. This is because without military might neither political nor commercial power was sustainable. Power really did, to paraphrase Mao Zedong (Mao Tse-tung) , ‘flow from the barrel of a gun’. Other legends that leap to mind are Alexander the Great, Julius Caesar, Queen Elizabeth I and of course the all too familiar Robert Clive. As political power and military power progressively diverged, military leadership remained important, but political leadership took centre stage with the greatest bearing on day to day life and the future prospects of nations. In parallel with the growing prominence of politics as a national force, commerce grew independently of military and politics. Politics needed leaders to

achieve political ends, as did commerce to achieve commercial ends. Distinct streams of leadership grew in each arena, the emphasis and focus of each being separate although the tools were often similar. These continued to evolve and, in the 21st century, political, military and business leadership are all seen as vital but distinct - each with a role specialised for the purpose, similar in means but distinct in manner and application.

Military leadership can rely the most on command and obedience - political leadership the least, relying more on guile and perception. Somewhere in between is business leadership. Leadership often deals in the intangible, the unknown and the unseen. Faith, trust and confidence in the leader are essential for teams to function properly. The truth about wars often remain shrouded in mystery and misinformation for so long that reports of questionable military leadership only surface many years after the soldier is dead - and very few are inclined to

vilify the dead. Failure in political leadership is often rewarded with a

peerage or some juicy diplomatic diversion. Failure in

commercial leadership is however unforgiving and

dealt with very harshly and promptly. Disgrace

is immediate. I will concentrate here

on leadership in commerce and

industry, not so much

on the traits

of

IT IS SAID THAT

THE NEED FOR

LEADERSHIP IS

GREATEST IN A CRISIS.

I WOULD TAKE

FUNDAMENTAL ISSUE

WITH THIS WIDELY

HELD VIEW – BUT

MORE ON THAT LATER.

MEANWHILE, LET US

LOOK BRIEFLY AT THE

HISTORY OF

LEADERSHIP.


leadership as on the junctures of the economic cycle at which leadership and intervention are of the most crucial need and the greatest importance.

But first let us recapitulate some of the essentials of leadership. There are three forms of authority: the authority of rank or position, the authority of personality and the authority of knowledge. Authority is power – not leadership. Knowledge, on the other hand, is the gateway to leadership. As far back as the time of Socrates it was believed that leadership is tied to situations and depends largely upon the leader having the appropriate knowledge. Obviously people will obey willingly only those whom they perceive to be better qualified or more

knowledgeable than they are in a particular situation. Professional or technical competence should therefore be a prerequisite for holding a position of leadership responsibility. Once leadership has been established, however, it must be continually reinforced by the actions of the leader. Exercise of sound knowledge or technical skills is not enough. Leaders must lead by example. Nothing they do escapes attention. They encourage people. They renew spirits, giving others fresh courage to pursue the common goal. Leaders should be strong administrators, as a lack of firmness leads to loss of respect.

Now to my dispute with the contention, that “leadership is most needed in a crisis”. A crisis arises after much has already gone wrong

and the situation is desperate. So, where was the leader when things started to go wrong? In my opinion, leadership is most needed, and therefore is of the greatest value, before the situation descends into a crisis. Intervention must come before the crisis occurs. It must take place immediately that things start to go wrong, not after disaster occurs. Good leaders will intervene to prevent a negative trend from descending into a crisis. This is when corrective actions are most needed. They must quickly chart a course to prevent a slide into disaster and to prepare for the upturn. Timely intervention by the leader can minimise the depth of the trough and restore the organisation, more quickly, to the road to recovery.

My second but related proposition is that the value of leadership is equally vital in times of prosperity as in adversity. Just when things are going well, there looms the spectre of the inevitable decline that follows the peak, manifest in the cycle of boom and bust. Leadership intervention at this critical juncture will enable an organisation to prepare for the downturn. There never really is a good point in the economic cycle,

Without SLI With SLI

Typical Economic Cycle

Special LeadershipIntervention (SLI)Points (SLIPs)


The Author is a Chairman & ManagingDirector Nuvista Pharma Ltd.

as each point is either declining or it is ascending towards a peak from which it will then decline. Anticipation, planning and communication can lengthen the up cycle and shorten the down cycle.Complacency in times of prosperity is a common human failing. Leaders however must rise above the common – in fact that is a hallmark of their leadership. They must intervene when the trend is positive so that the organisation can maximise opportunities, ride the crest for longer and peak higher than otherwise. On the way down a good leader will intervene to ease the slope of the decline and minimise the depth of the trough before the cycle of recovery begins again. A clear impression that the leader has the situation in his grip provides confidence to the team that the organisation will ride out the storm with a minimum of pain. The enthusiasm of the leader can spur the energy of the team to achieve the future that they in fact create for themselves.

From the foregoing it should be obvious that good leadership is critical for minimising troughs of adversity and maximising peaks of prosperity. Leadership is needed when times are good, when in a crisis, when things are getting worse and also when they are improving. Leadership is therefore

always needed and always critical and always important, regardless of the point in the economic cycle. It somewhat demeans the vitality of leadership to contend that it is critical merely in a crisis or even in some other particular circumstance. Having said that, leadership intervention is more crucial at certain critical junctures of the economic cycle than at others. These critical points, I suggest, are about halfway up the boom cycle and about halfway down the bust cycle. Such intervention I have dubbed as “Special Leadership Intervention” (SLI) and the points at which such intervention is needed as “Special Leadership Intervention Points” or SLIPs. SLI maximises the peak and minimises the trough. Leadership is of course crucial at every stage of the economic cycle but none more so than that at the SLIPs. Theoretically, at least, Special Leadership Intervention can completely avoid the worst effects of at least one downturn in five. The attached diagram illustrates my proposition, rendering, I think, further elaboration on this specific aspect unnecessary.Leaders must know when to intervene. They must therefore be sensitive to trends. They must anticipate and challenge conventional wisdom. They must devise solutions to confront the

many challenges they face from time to time. They must be creative as each challenge is unique. After all, no two objects or phenomenon in the universe are identical – so why should any two issues be so identical as to be responsive to the same solution? Learning from each challenge improves a leader’s judgement but they do not provide him with a toolbox of readymade solutions.

A leader must be prepared to be decisive even in the absence of full information. Most decisions that leaders take are about the future, about which it is impossible to have all facts and information. This calls for judgement. Those who require full facts and information before they can make a decision do not make good leaders. To quote marketing guru Philip Kotler “The best way to predict the future is to create it” or words to this effect. And who better to visualise the future and inspire the team to create it than the leader?

Leaders must have the courage to take bold decisions. Courage is not being devoid of fear; it is the will or ability to control fear and to draw from it energy and resolution – to turn adversity to advantage! In the words of Rahm Emanuel “Never waste a crisis”!

In line with the basic precept, leaders should never take their eye off the ball. They must always be visible, even palpable. Leadership is needed at all times, particularly at the SLIPs. I end this article with the hope that this modest offering will be of some help to good leaders in their quest to become great leaders.


Recently the commercial banks of the country, specially the state owned commercial banks, are facing liquidity crisis. Reason behind such crisis has been identified that the growth rate of investment is much higher than the growth rate of deposit. In banking business there is a common theory that liquidity and profitability are reverse of each other. If a bank invests more for earning more profit, there is a chance of happening liquidity crisis.

On the other hand, if the bank maintains more assets in liquid form to meet up the depositors’ demand, profit of the bank may be less. To resolve this contrast, the central bank of the country, as regulatory body, fixes up the required liquid asset limit in the form of Cash Reserve Requirement (CRR) and Statutory Liquidity Ratio (SLR), and all the banks are bound to follow the guideline. Although the profitability and the liquidity are reversing of each other, despite that there is a relationship between liquidity and profitability. If a bank earns more profit specially cash profit, the liquidity position of the bank will be improved. If the results of operating activities are calculated based on cash transaction, this may be called cash profit or realized profit. Normally, in the cash flow statement of the bank results

of cash flow from operating activities are disclosed.

As per International Accounting Standard the objective of such cash flow statement is to assess the ability of the bank to generate cash and cash equivalent and the needs of the bank to utilize those cash flows. The economic decisions that are taken by users require an evaluation of the ability of a bank to generate cash and cash equivalents, and the timing and certainty of their generation. So, in respect of assessing the operational result and determination of the liquidity position of the bank, cash flow statement is very important. In regard to preparation of this cash flow statement correctly, there remain some observations based on review of recently published financial statement of the bank for the year 2010. The review of twelve financial statements of Commercial Banks which represent almost 45 percent of total loans and advances, reveals that total operating profit is TK69,115 million and realized (cash) profit is Tk 66,920 million i.e. realized operating profit is 97 percent of total (realized and accrual) operating profit.

According to present banking scenario, it is completely unbelievable because these results reveal that almost 97 percent of accrued interest on loans and advances

Non compliance of laws andInternational Accounting Standards may

create confusion about genuinenessof financial statements of banks

Md Shahadat Hossain FCA


are being realized. If the operating result of the banking sector is like this, there is no scope of huge amount of bad loan, and there is no scope of increase of bad loan. But, if we pay our attention to the statistics of classified loan, we can see that during the year 2007 classified loan was Tk 200,990 million, during the year 2010 such balance reached up to Tk 240,881million. So the increasing trend of classified loan indicates that there remain some doubts about genuineness of cash operating profit which has been shown in the cash flow statements. It is pertinent to mention here that, if the relationship between total operating profit and cash operating profit is bifurcated in/by the private commercial banks and state owned commercial banks, we can see that ten private commercial banks which represent almost 40 percent of total loans and advances have earned total operating profit TK 46,172 million and realized operating profit TK 43,599 million i.e realized operating profit is 94 percent of accrual based operating profit. But the two state owned commercial banks which represent more than 50 percent loans and advances of all the state owned commercial banks have earned total operating profit TK 22,943 million and realized operating profit TK 23,321 million i.e. realized operating profit is 102 percent of accrual based operating profit. As earlier mentioned there remains a close relationship between realized operating profit and default loan. If the amount of default loan is more, the investment income will be less; similarly if the default loan is less, the investment income will be more.

When any loan is classified as default loan on accrual basis of accounting, its interest cannot be taken as income and again, when a

loan becomes default, it starts from failing to repay interest of the loan. So, in cash basis the income will be reduced. If we look at the status of classified loan, it can be seen that the percentage of default loan of state owned commercial banks is much higher than that of private banks. During the year 2010, the rate of classified loan in private sector is 3.82 percent but at the same time the rate of classified loan in state owned commercial banks is 19.65 percent i.e. five times more than private banks. So, the statistics in regard to cash generation from operating activities of the bank and amount of classified loan of private banks and state owned commercial banks reflects complete contradictory results. These results create confusion whether the figures which have been presented in the cash flow statement, are correct or not. One of the elements of cash operating profit ‘Interest receipts in cash’ is not possible to be ascertained without analyzing each and every loan. But the amount is presented in the financial statements, specially, of state owned commercial banks without analyzing each and every loan and even without collecting data from the branches. The figures are determined from the records of the head office. Each and every figure of financial statements is very important to know the position of the bank. These financial statements are important not only for decision making but also for compliance of law. So, it should be prepared presenting correct figures. As per latest International Accounting Standards, for preparing correct and complete financial statements another important issue is accounting of derivatives. Basically, derivatives are contracts such as options, forwards, futures, and swaps. Main characteristics of derivations are their changes of values in response to the change in a specified interest rate, financial instrument price, commodity price, foreign exchange rate, index of prices or rate, credit rating, credit index or other variable and they are settled at

RECENTLY THE

COMMERCIAL BANKS

OF THE COUNTRY,

SPECIALLY THE STATE

OWNED COMMERCIAL

BANKS, ARE FACING

LIQUIDITY CRISIS.

REASON BEHIND SUCH

CRISIS HAS BEEN

IDENTIFIED THAT THE

GROWTH RATE OF

INVESTMENT IS MUCH

HIGHER THAN THE

GROWTH RATE OF

DEPOSIT.


a future date. Since derivatives are contracts and entered into at no or a very little cost, it is not required to recognize these in financial statements. But according to the International Accounting Standard (IAS-39) derivatives require to be measured at fair value with changes in fair value recognized either in profit or loss or in reserve. In our country every bank deals with huge number of derivatives in the form of forward contract, future contract and SWAP. Most the derivatives are relating to buy and sale of foreign currency. According to previous practice, the net gains and losses are accounted for after the settlement of the derivatives. But as per IAS-39 as on the date of financial position (balance sheet) the derivatives need to be accounted for.

Another important issue in regard to proper accounting of bank and

financial institutions is that according to the International Accounting Standard (IAS-1) a bank shall present separately each material class of similar items and a bank shall present separately items of a dissimilar nature or function unless they are immaterial. Again, if a line item is not individually material, it shall be aggregated with other items either in the face of financial position and comprehensive income statement or in the notes. In regard to the materiality and aggregation, the guideline of the companies act is that any item under the expenses exceeding 1 percent of the total revenue of the company or Tk 5000 whichever is higher, shall be shown as a separate and distinct item against an appropriate account head in the profit and loss account, and shall not be combined with any other item shown under miscellaneous

expenses. In some cases this standard and law are not being followed properly during preparation of financial statements. In one case it has come to notice that Tk 582,809,078 which is equivalent to 4.25% of revenue (79% of total of main head) has been shown using the nomenclature/ heading ‘Miscellaneous earnings’ under the main head ‘Other operating income’. Neither the head ‘Miscellaneous earnings’ nor the main head ‘Other operating income’ is specific to the users to understand the financial statements. So presenting this huge amount under such heading creates a doubt about the genuineness of the financial statements and this is not only the non-compliance of International Accounting Standards but also the violation of law.

To overcome the issues complete financial statements of all the branches need to be prepared and those may be brought under audit, the management responsible to prepare the financial statements should be more careful and auditor should also be more careful in expressing their audit opinion on those financial statements.

The Author is a Vice President of ICAB


Abstract

ObjectivesThe objective of this paper is to identify the regulatory requirements of disclosure by the listed banking companies in annual reports. The authors also examine the compliance status of bank through case study.

Methodology

Related laws, regulations and guidelines have been reviewed to identify the disclosure requirements of the banking companies. Case study method is used to know the extent of disclosure and compliance with the regulatory requirements. The case study method is limited to the use of an alternate method to investigate disclosure compliance of the banking company.

Implications

This is a study that covers most of the regulations regarding disclosure by the banking companies to identify the requirements. This paper compiled most of the provisions regarding disclosure under different laws, regulations and guidelines in the annual report of the banks. So, any type of user can know the disclosure requirements of the banks. It

may be helpful for the banks who are not complying yet. It may help the regulators to make any amendment in concerned law considering others.

Findings and Recommendations

Banking companies are complying with most of the regulations. In some cases they are proactive to comply with the regulations. To make easy compliance and to minimize redundancy in requirements, a single regulation should consider and compile all disclosure requirements of different regulations and that particular regulation should be referred by all regulators regarding banking companies’ disclosure.

Limitations

No comprehensive list of disclosure items has been prepared. This paper does not use any statistical tool for analyzing data. Despite these limitations, the study helps to understand the disclosure requirements of banking company listed in Bangladesh.

Key Words

Disclosure Requirement, Disclosure, Annual Report, Banking Company, Accounting Standard, Financial Reporting, Regulation.

Disclosure Requirements in Annual Reportsby the Listed Banking Companies:

Cases from BangladeshMd. Mahabbat Hossain


1. Introduction

There are different regulatory authorities to regulate listed banking companies in Bangladesh. Disclosure requirement of the different regulators is different. Listed banking companies are regulated by different regulators under different regulations. So disclosure requirement of a particular bank may vary depending on regulators. The complex process of banking regulation exists in Bangladesh (Sobhan and Werner, 2003) (See Box 1 and Box 2). The Registrar of Joint Stock Companies and Firms (RJSC) is the sole authority which facilitates formation of companies etc. and keeps track of all ownership related issues as prescribed by the laws in Bangladesh. RJSC accords registration and ensures lawful administration of the entities under the provisions of applicable Act like the Companies Act, 1994. The business of RJSC are to incorporate Companies, Partnership Firms etc. and to administer and enforce the relevant statutory provisions of the Acts in relation to the incorporated companies, partnership firms etc. Bangladesh Bank (central bank of Bangladesh) is the regulator of all Banking and Non-banking Financial Institutions of Bangladesh. All of the listed companies are to follow the guidelines and instructions of Securities and Exchange Commission (SEC). The Companies Act, 1994, the Banking Companies Act, 1991, the Securities and Exchange Ordinance, 1969, Securities and Exchange Rules, 1987 and the International Accounting Standards (IASs) or Bangladesh Accounting Standards (BASs), International Financial Reporting Standards (IFRSs) or Bangladesh Financial Reporting Standards (BFRSs), the Listing Regulations of Dhaka Stock

Exchange Limited, the Listing Regulations of the Chittagong Stock Exchange Limited-CSE etc. are the most important legislations to govern the financial reporting environment of the listed banking companies in Bangladesh (see Box 1). In addition, to ensure more transparency in accounting system and disclosure of important accounting policies of banks and financial institutions in Bangladesh, Bangladesh Bank issues circulars for mandatory disclosure of information. Since 2000, all banks in Bangladesh are required to comply with IAS-30 for preparation of their annual reports. Further, the Securities Exchange Commission (SEC) of Bangladesh has passed Corporate Governance Guidelines in February 2006 that expect to increase the level of disclosure made the listed companies in Bangladesh. The companies listed either or both in the Dhaka Stock Exchange (DSE) and the Chittagong Stock Exchange (CSE) are to comply with the listing requirements of the Exchange.

Karim (1995), Hossain (1999), Akhtaruddin (2005), Hossain et al. (2006) found that the disclosure levels of Bangladeshi listed companies are generally poor which ultimately raises the question on accounting transparency in Bangladesh. Compared to India, Sri Lanka, Pakistan, Thailand and Malaysia, CG in practice and philosophy have up till now remained relatively under-developed in Bangladesh (Nurunnabi, 2009). Islam (2006) in his study found that the percentage of compliance rate for Bangladeshi sample companies taking into consideration of 21 mandatory accounting Standards was only 71%. Parry and Khan (1984) surveyed 74 companies including 13 banks and found that annual reports were generally informative and complied with legal requirements, but no attempt was taken to comply with IASs. Similarly, Toha (1986) has made an empirical study of the practical application of IASs in Bangladesh, and found that the application of IASs in

THERE ARE

DIFFERENT

REGULATORY

AUTHORITIES TO

REGULATE LISTED

BANKING COMPANIES

IN BANGLADESH.

DISCLOSURE

REQUIREMENT OF THE

DIFFERENT

REGULATORS IS

DIFFERENT. LISTED

BANKING COMPANIES

ARE REGULATED BY

DIFFERENT

REGULATORS UNDER

DIFFERENT

REGULATIONS. SO

DISCLOSURE

REQUIREMENT OF A

PARTICULAR BANK

MAY VARY DEPENDING

ON REGULATORS.


Bangladesh is very limited. Likewise, Hye (1992) observed that in spite of the recommendation of the ICAB, the picture depicted by published accounts is not satisfactory at all. Nurunnabi (2009) commented that corruption, bureaucratic inefficiency, political interference in administration, nepotism, misuse of power and resources, improper and non-observance of the rule of law, non-accountable and non-transparent administration are the common features of Bangladesh. Some empirical studies, like, Ahmed and Nicholls, 1994 (Bangladesh), Karim (1995), Hossain, 1999 (India, Pakistan and Bangladesh), Owusu-Ansah, 2000 (Zimbabwe), Hossain, 2001 (Bangladesh), Joshi and Ramadhan, 2002 (Bahrain), Ahmed, 2005a (India), Akhtaruddin, 2005 (Bangladesh), Hossain, Cooper, and Islam, 2006 (Bangladesh), Islam, 2006 (India, Pakistan, Bangladesh and Sri Lanka), Samaha and Stapleton, 2008 (Egypt), Hossain, 2008 (India), Ahmed, 2009 (Bangladesh), etc., found that the companies of developing countries are not following the mandatory accounting standards while preparing their financial

statements. Baumann and Nier (2003) addressed the issues of developing a set of disclosure requirements by Pillar 3 of Basel II that improved market participants’ ability to assess a bank’s value using a unique dataset on almost 600 banks in 31 countries over the period 1993-2000. Ahmed and Dey (2009) empirically measured and analyzed the performance of disclosure items in a developing country like Bangladesh. And the results showed that Arab Bangladesh Bank (AB Bank) appeared to have the highest levels of disclosure and Standard bank appeared to have the lowest levels of disclosure. Full compliance of disclosure with proper and effective audit is very important to maintain accountability and bring about transparency of firms (Reaz and Arun, 2006). In this paper, considering the regulations, the researcher tries to identify the disclosure requirements by the listed banking companies in their annual reports and compliance status of the Bangladeshi banking companies with these regulations.

1.1 Objectives of the Study

The objective of this study is to

examine the legislations that influence listed banking companies to disclose information in their annual reports and compliance thereto. The specific objectives of this study are:

(i) to identify the regulatory requirements of disclosure by the listed banking companies in annual reports and

(ii) to examine the annual reports of bank to judge the compliance of disclosure.

1.2 Research Methodology

Related laws, regulations and guidelines, issued by different authorities, have been reviewed by the researcher to identify the disclosure requirements of the listed banking companies in Bangladesh. Related laws, regulations and guidelines have been collected from different website, like website of Bangladesh Bank, website of Securities and Exchange Commission, website of Dhaka Stock Exchange, website of Chittagong Stock Exchange, website of the Government of the People’s Republic of Bangladesh, Legislative and Parliamentary Affairs Division etc., books and the Bangladesh Gazettes. After collecting these, researcher has gone through these and summarized the provisions regarding disclosure. The case study method has been used to know disclosure pattern of the selected industry. The case study method is a technique by which individual factor whether it be an institution or just an episode in the life of an individual or a group is analyzed in its relationship to any other in the group (H. Odum). This method involves the understanding what is the present status of the organization regarding disclosure. For this purpose the researcher has studied the annual report of AB


Bank Limited and Prime Bank Limited of the year 2009 for each. For the purpose of selection the companies the judgmental approach has been applied. There are 30 listed banks in Bangladesh (see Annexure A). Among these researcher selected first one in the list, i.e. AB Bank Limited, and Prime Bank Limited as the best presented accounts recognized by South Asian Federation of Accountants (SAFA) and Institute of Chartered Accountants of Bangladesh (ICAB) (Prime Bank Limited, 2009). With this view, the paper has five sections. Section one provides introduction, objectives and research methodology of this paper whereas section two presents the regulatory requirements of disclosure. Section three analyses two cases followed by findings in section four. Final section presents the summary and concluding remarks.

2. Regulatory Disclosure Requirements in Annual Reports of the Listed Banking Companies

As Sobhan and Werner (2003) stated that the complex process of banking regulation exists in Bangladesh. The Registrar of Joint Stock Companies and Firms (RJSC), the Securities Exchange Commission (SEC) of Bangladesh, Bangladesh Bank (BB), Dhaka Stock Exchange (DSE), Chittagong Stock Exchange (CSE) are the regulatory authorities who can impose the disclosure requirements of the listed banking companies in their annual reports. The Registrar is the authority of the Office of the Registrar of Joint Stock Companies and Firms, Bangladesh and deals with the private companies, public companies, foreign companies, trade organizations, societies, and partnership firms. SEC was

established on 8th June, 1993 under the Securities and Exchange Commission Act, 1993, as a statutory body and attached to the Ministry of Finance, having overall responsibility to administer securities legislation (SEC, 2011). Bangladesh Bank was established as a body corporate vides the Bangladesh Bank Order, 1972 as the central bank as well as regulator of the financial system of Bangladesh. The core function of BB is to formulate and implement monetary policy. It also monitors and supervises scheduled banks and non-bank financial instructions in order to enhance the safety, soundness, and stability of the banking system to ensure banking discipline (Bangladesh Bank, 2011). So, the compliance of the Banking Companies Act, 1991 is monitored by BB. The Dhaka Stock Exchange (DSE) is registered as a Public Limited Company. Although it was incorporated in 1954, the formal trading was started in 1956. The main functions of DSE are listing of companies and monitoring the activities of listed companies (DSE, 2011). DSE may impose some disclosure requirements as a part of listing requirement or monitoring the activity. The Chittagong Stock Exchange (CSE) began its journey in 10th October of 1995. CSE works towards an effective, efficient and transparent market to serve and invest in Bangladesh (CSE, 2011). Like DSE it may impose disclosure requirements.

There are two professional accountancy bodies in Bangladesh – the Institute of Chartered Accountants of Bangladesh (ICAB) and the Institute of Cost and Management Accountants of Bangladesh (ICMAB). ICAB is the National Professional Accounting Body of Bangladesh established under the Bangladesh Chartered Accountants Order 1973 and

regulates the Accountancy Profession and matters connected therewith in the country (ICAB, 2011). The members of ICAB are entitled to attest to the validity of accounts and to report to shareholders whether a company's financial statements comply with statutory provisions (Nicholls and Ahmed., 1995). In 1983, ICAB became the member of the International Accounting Standard Committee (IASC). Bangladesh Accounting Standards (BASs) are the adapted International Accounting Standards (IASs) by the ICAB. The ICAB through their Technical and Research Committee have adopted 28 International Accounting Standards (IASs) and 8 IFRSs as national accounting standards, taking into consideration the local laws and regulations and several IASs are in process of adaptation (see Box 5). On the other hand, ICMAB is a leading professional body in Bangladesh and it offers professional qualification in Cost and Management Accountancy, with a focus on accounting for business (ICMAB, 2011). In December 2010, BB has issued guidelines titled “Guidelines on Risk Based Capital Adequacy (Revised Regulatory Capital Framework for banks in line with Basel II)”. As per this guideline Disclosure Requirement as stated in these guidelines have to be followed by all scheduled banks form January 01, 2010 (BB, 2010). As the paper will analyze the annual report of 2009 it is not considering disclosure requirements under Basel II. It is noted that Basel II (BIS, 2006) is issued by Basel Committee on Banking Supervision of the Bank for International Settlements. The Third Pillar of Basel II discusses the Disclosure requirements of the banking companies.


2.1 The Provisions Regarding Financial Reporting under the Companies Act, 1994

The Companies Act, 1994 was expedient to consolidate and amend the law relating to companies and certain other Associations (Government of the People’s Republic of Bangladesh, 1994). The main provisions of the Companies Act, 1994 regarding the financial reports have laid down under Sections 181 to 185 and 192 (see Box 3). Section 181 of the Companies Act, 1994 represents the obligation to keep the proper books of accounts. Section 183 (1) provides the requirements to present audited

balance sheet, and profit and loss account in the annual general meeting and section 184 (1) of this Act provides the requirements for directors' report. Although Section 181 of the Companies Act, 1994 states the obligation to keep proper books of account but does not give any idea about what sort of books of accounts to be kept. Section 183 (2) provides that the maximum time limit to present a balance sheet and a profit and loss account at the Annual General Meeting. Section 185 (1) lays down that the balance sheet must contain a summary of the property and assets and of the capital and liabilities of the company giving true and fair view of affairs as at the end of the financial year. Section 185 (2) states that every profit and loss account of a company shall give a true and fair view of the profit and or loss of the company for the financial year and should prepare the statement in accordance with Schedule XI so far as applicable thereto. Part I of Schedule XI contains two forms of Balance sheet- Form A and Form B. Figure of the previous year and those for the current year are to be shown in

the Balance Sheet in both the forms. In addition, the section says that in the preparation of the balance sheet due regard shall be made as far as possible, to the general instructions under the heading 'Notes' at the end of the Part I. This notes if carefully review will show that they are in accordance with IAS-1, 1AS-5, IAS-7, IAS-8, IAS-10 and IAS-13. Part II of the Schedule XI provides the list of the incomes and expenditures relating to the period covered by the account.

Section 184 (1) states that in the annual general meeting of the company, a directors’ report shall be attached with each balance sheet and report must provide the state of affairs, the amount, if any, the board of directors proposed to carry to the reserve fund shown on the balance sheet, the amount, if any, the board of directors in their director' report recommend should be paid by way of as dividend, and any change in the balance sheet between the last data of balance sheet period and the date of such report affects the financial position of the company significantly.

Source: Researcher’s own analysis

Box 1: List of Major Regulationsregarding disclosure of ListedBanking Companies

1. The Companies Act, 19942. The Banking Companies Act, 19913. The Securities and Exchange

Ordinance 1969, 4. Securities and Exchange Rules 19875. International Accounting Standards6. Bangladesh Accounting Standards7. International Financial Reporting

Standards8. The Listing Regulations of Dhaka

Stock Exchange Limited9. The Listing Regulations of the

Chittagong Stock Exchange Limited-CSE


Box 2: List of Major Regulators ofListed Banking Companies inBangladesh for disclosure issues.

1. The Registrar of Joint Stock Companies and Firms (RJSC)

2. The Securities Exchange Commission (SEC)

3. Bangladesh Bank (BB)4. Dhaka Stock Exchange Limited

(DSE)5. Chittagong Stock Exchange Limited

(CSE)


Furthermore, section 185 (5) states that the directors in their report shall be obliged to make out full information and explanations regarding the comments made in the auditor's report. Besides these, section 192 mentions that every company being a limited Banking company or an insurance company has to prepare the statements in accordance with Schedule XII, or as near thereto. So, the most important requirements of this Act for the banking companies are the general instructions for FS of Schedule XI under section 185, Board of Directors’ Report’s information as per section 184 and 185 and Schedule XII under section 192. However, the Companies Act 1994 does not contain any provision for mandatory observance of the adopted IFRSs and ISAs in practice (Nurunnabi, 2009).

2.2 The Provisions Regarding Financial Reporting under the Banking Companies Act, 1991

The Banking Companies Act, 1991 was expedient to make provisions for banking companies (Government of the People’s Republic of Bangladesh, 1991). The main provisions of the Banking Companies Act, 1991, regarding disclosure, have laid down in section 18, and 36 to 43 (see Box 4). Section 18 of the Companies Act, 1991 depicts that the bank should disclose the transactions with directors. As per section 36, every banking company shall submit reports to the Bangladesh Bank on the 31st day of December and 30th day of June of each year showing its assets and liabilities in the prescribed form and manner. According to Section 38, the accounts and balance sheet of a banking company will be prepared as per BRPD circular 14/2003 and also the provision of the Companies Act, 1994. Section 40 mentions that audited financial statement shall be submitted to Bangladesh Bank within the three months of the close of the period

to which they relate. If the Bank is a private company, it is required to submit the accounts and balance sheet to registrar according to section 41. According to Section 42 of this Act, every banking company incorporated outside Bangladesh shall not later than the 1st Monday in February of the year when it runs the business, display a copy of the last balance sheet and profit and loss account made under section 38 in a conspicuous place in its principal office and every branch office in Bangladesh until submitted by a copy of the subsequent balance sheet and accounts are displayed in the same way. Besides, Section 2 of Banking Companies Act, 1991 states that the banking companies should comply with provisions of the Companies Act 1994 as the banking companies are registered with the registered joint stock companies as a company, if otherwise expressed in the Banking Companies Act, 1991. So, the most important section regarding preparation and presentation of financial statements is Section 38 of the Banking Companies Act, 1991 including schedule.


Box 3: List of important provisionsin the Companies Act, 1994regarding disclosure.

Sec. 181: Books to be kept by Company and Penalty for not keeping them

Sec. 182: Inspection of Books of Accounts, etc. of Companies

Sec. 183: Annual Balance SheetSec. 184: Board’s ReportSec. 185: Form and Contents of

Balance Sheet and Profit and Loss Accounts

Sec. 186: Balance Sheet of Holding Company to include certain Particulars as to its Subsidiary

Sec. 187: Financial Year of Holding Company and Subsidiary

Sec. 189: Authentication of Balance Sheet, Profit and Loss Accounts, etc.

Sec. 190: Copy of Balance Sheet etc. to be filed with Registrar

Sec. 191: Rights of Members to copies of accounts and reports

Sec. 192: Statement to be published by Banking and Certain other Companies


2.3 The Provisions Regarding Financial Reporting under the Securities and Exchange Ordinance, 1969 and the Securities and Exchange Rules, 1987

The Securities and Exchange Ordinance, 1969 was expedient to provide for the protection of investors, regulations of capital markets and issues and dealings in securities and for matters ancillary thereto (The President of the

People’s Republic of Bangladesh, 1969). Section 11 of this Ordinance states that an issuer of a listed security shall furnish to the Stock Exchange, to the security holders and to the SEC an annual report of its affairs and such statements and other reports as may be prescribed. The Securities and Exchange Rules (SER), 1987 is applicable to companies that are trading on the stock exchanges in Bangladesh. According to Rule 12, the annual report required by Section 11 of the Securities and Exchange Ordinance, 1969 to be furnished by an issuer of a listed security shall include a balance sheet, profit and loss account, cash flow statement and notes to the accounts and collectively that refer the financial statements. It is also depicted in this rule that the financial statements of an issuer of a listed security shall be prepared in accordance with requirements laid down in the Schedule of this rules and the International Accounting Standards as adopted by the Institute of chartered Accountants of Bangladesh.

As per Part I of the Schedule of the SER, 1987 the assets and liabilities

shall be classified under the headings appropriate to the company’s business, distinguishing as regards assets between fixed assets, long-term prepayments and deferred costs, investments, loans and advances and current assets, and as regards liabilities between share capital and reserves, long-term loans and deferred liabilities and current liabilities and provisions. According to Part II the profit and loss account shall be so made out as to disclose clearly the result of the working of the company during the period covered by the account and shall show, arranged under the most convenient heads, the gross income and the gross expenditure of the company during the period, disclosing every material feature. Part-III depicts that the cash flows statement shall be so made out as to disclose clearly the cash flows of the company from its operating, investing and financial activities, disclosing every material feature. It is mentioned in the Rule 13 that every issuer shall, within one month of close of the first half-year, transmit to the stock exchange in which its securities are listed, to the security holders and to the SEC half-yearly financial statements which shall be prepared in the same manner and form as the annual financial statements. Prescribed form may be amended for compliance with IASs and it is stated in the Rule 13A. So, there is no additional requirement of disclosure by the banking companies.

2.4 Influence of mandatory International Accounting Standards (IASs) or International Financial Reporting Standards (IFRSs) in Bangladesh

International Accounting Standard (IASB) began operations in 2001. After 2001 the Accounting Standards issued by IASB are


Box 4: List of important disclosureprovisions in the BankingCompanies Act, 1991

Sec. 18: Transaction related to directors should be disclosed

Sec. 36: Half yearly ReturnsSec. 37: Power for publishing

InformationSec. 38: Accounts and Balance SheetsSec. 39: AuditSec. 40: Report SubmissionSec. 40: Sending Balance Sheet etc. to

the RegistrarSec. 42: Display of Audited Balance

Sheet by the Banking Company incorporated outside Bangladesh

Sec. 43: Accounting Provisions not Retrospective


known as International Financial Reporting Standards (IFRSs). Before establishment of IASB standards were issued by International Accounting Standard Committee (IASC) that standards are known as International Accounting Standards (IASs). Accounting standards are the norms of accounting policies and practices issued by the accounting bodies, national and international, for the guidance of their members regarding the treatment of the items which made the financial statements and their disclosure therein (Azizuddin, 1991). These accounting standards are intended to describe methods of accounting or disclosure for the application to all adopted accounting standards expected to give a true and fair view of financial position and results (Hossain, 2007). The establishment and enforcement of standards is an important issue for the accounting profession and its interested users. Determining the best mechanism to employ in establishment uniform accounting standards may be essential to the acceptability and usefulness of accounting standards (Belkaoui and Jones, 1996).

In Bangladesh, ICAB is the sole authority to adopt the International Accounting Standards (IASs) as Bangladesh Accounting Standards (BASs). So, adopted IASs & IFRSs are known in Bangladesh as BASs and BFRSs respectively. The Securities and Exchange Commission has circulated a notification (Notification No. SEC/Section-7/SER/03/132 dated October 22, 1997, published in official gazette on December 29, 1997) requiring all listed companies to abide by Bangladesh Accounting Standards as adopted by the ICAB. Hence, accounting standards are mandatory only for the companies listed in the DSE and the CSE. As a result, there is a great influence of the accounting

Box 5: Current Status of BASs vis-à-vis IASs/IFRSs in Bangladesh

BAS No.

1278

1011121617181920

21

232426

27

2829

313233343637

3839

4041

BAS Title

Presentation of Financial StatementsInventoriesStatement of Cash FlowsAccounting Policies, Changes in Accounting Estimates and Errors Events after the Balance Sheet DateConstruction ContractsIncome TaxesProperty, Plant & EquipmentLeasesRevenueEmployee BenefitsAccounting of Government Grants and Disclosure of Government AssistanceThe Effects of Changes in Foreign Exchange RatesBorrowing CostsRelated Party DisclosuresAccounting and Reporting by Retirement Benefit PlansConsolidated and Separate Financial StatementsInvestments in AssociatesFinancial Reporting in Hyperinflationary Economics Interest in Joint VenturesFinancial Instruments: PresentationEarnings per ShareInterim Financial ReportingImpairment of AssetsProvisions, Contingent Liabilities and Contingent Assets Intangible AssetsFinancial Instruments: Recognition and MeasurementInvestment PropertyAgriculture

BAS Effective Date

Adopted, on or after 1st January 2007Adopted, on or after 1st January 2007Adopted, on or after 1st January 1999Adopted, on or after 1st January 2007

Adopted, on or after 1st January 2007Adopted, on or after 1st January 1999Adopted, on or after 1st January 1999Adopted, on or after 1st January 2007Adopted, on or after 1st January 2007Adopted, on or after 1st January 2007Adopted, on or after 1st January 2004Adopted, on or after 1st January 1999

Adopted, on or after 1st January 2007

Adopted, on or after 1st January 2010Adopted, on or after 1st January 2007Adopted, on or after 1st January 2007

Adopted, on or after 1st January 2010

Adopted, on or after 1st January 2007Not yet adopted by ICAB as Impracticable for Bangladeshi contextAdopted, on or after 1st January 2007Adopted, on or after 1st January 2010Adopted, on or after 1st January 2007Adopted, on or after 1st January 1999Adopted, on or after 1st January 2005Adopted, on or after 1st January 2007

Adopted, on or after 1st January 2005Adopted, on or after 1st January 2010

Adopted, on or after 1st January 2007Adopted, on or after 1st January 2007

standards on financial reporting practices in Bangladesh. In such a situation, accounting standards, having legal backing, are likely to have a very strong influence on the financial reporting system in Bangladesh. BAS 30 or IFRS 7, BAS 32, 39 are decisive standard regarding disclosure of the banking companies in their annual reports. If the enterprises within IASB member countries do not comply with the promulgated accounting

or financial reporting standards, global harmonization will not be achieved (Hossain, Cooper and Islam, 2006). The growing acceptance of IASs by emerging capital markets has encouraged empirical investigation of compliance with the requirements of IASs (Weetman, 2003).


2.5 Mandatory Disclosure Provisions for Financial Institutions under IAS 30 (BAS 30)

BAS 30 shall be applied in the financial statements of banks and similar financial institutions. This standard became operative covering periods beginning on or after 1 January 1999. It is mentioned in the standard that compliance with this BAS ensures compliance in all material respects with IAS 30. In accordance with BAS 30 Bangladesh Bank prescribed a format for banks and issued a circular (BRPD Circular No. 3/2000, dated 18 April 2000) to comply with this format. Later on BB issued another circular (BRPD Circular No. 14/2003, dated 25 June 2003) to revise the previous one. It is noted that BAS 30 has been superseded by BFRS 7 that is applicable for the periods beginning on or after 1 January 2010. But BB does not prescribe the revise format in line with BFRS 7. The main provisions of IAS 30 are presented below:

Paragraph 8 of IAS 30 states that like other business entity, banks may use different methods for recognition and measurement of

Source: http://www.icab.org.bd/bas.php, cited on May 5, 2011

IFRS

IFRS 1

IFRS 2

IFRS 3

IFRS 4

IFRS 5

IFRS 6

IFRS 7

IFRS 8

IFRS 9

Title

First-time adoption of International financial Reporting StandardsShare-based Payment

Business Combinations

Insurance Contracts

Non-current Assets Held for Sale and Discontinued OperationsExploration for and Evaluation of Mineral ResourcesFinancial Instruments: Disclosures

Operating Segments

Financial Instruments

Adoption Status of ICAB

Adopted as BFRS 1, effective on or after 1 January 2009Adopted as BFRS 2, effective on or after 1 January 2007Adopted as BFRS 3, effective on or after 1 January 2010Adopted as BFRS 4, effective on or after 1 January 2010Adopted as BFRS 5, effective on or after 1 January 2007Adopted as BFRS 6, effective on or after 1 January 2007Adopted as BFRS 7, effective on or after 1 January 2010Adopted as BFRS 8, effective on or after 1 January 2010Not yet adopted by ICAB

items in their financial statements. Therefore, for better understanding of the users of accounting information, banks should disclose the accounting policies that are followed for preparing financial statements. As per Paragraph 9, income and expenses should be presented in the income statement as grouped by nature. Paragraph 10 depicts some prescribed items of income statement. Among the principal types of income, interest, fees for services, commission and dealing results should separately disclosed in the financial statement (Paragraph 11). Like income, among the principal types of expense, interest, commissions,

losses on loans and advances, charges relating to the reduction in the carrying amount of investments and general administrative expenses should be disclosed separately as stated in Paragraph 12. Paragraph 13 states that income and expense items should not be offset except for those relating to hedges. As per Paragraph 15, gain and losses arising from disposal and changes in the carrying amount of dealing securities, disposal of investment securities, and dealing in foreign currencies are normally reported on a net basis.

According to Paragraph 16, interest income and interest expense should be disclosed separately. Governments’ assistance to bank by making deposits and other credit facilities should be disclosed (Paragraph 17). Paragraph 18 prescribes that assets and liabilities should be grouped as their nature and presented as their liquidity. As per Paragraph 19, among others the following items should be disclosed in the balance sheet of a bank: cash and balance with the central bank; treasury bills and other bills eligible for rediscounting with the central bank; Government and other securities held for dealing purposes; placements with, and loans and advances to, other


banks; other money market placements; loans and advances to customers; investment securities; deposits from other banks; other money market deposits; amounts owed to other depositors; certificates of deposits; promissory notes and other liabilities evidenced by paper; and other borrowed funds.

It is no longer required to group the assets and liabilities as currents and non-currents (Paragraph 20). As per Paragraph 21, a bank should disclose separately the balance with the central bank, placements with other bank, other money market placements, deposits from other banks, other money market deposits and other deposits. According to Paragraph 23, bank should not offset any asset or liability with other liability or asset unless a legal right of set-off exists and the offsetting represents the expectation as to the realization or settlement of the asset or liability. It is mentioned in the Paragraph 24 that a bank should disclose the fair values of each class of its financial assets and liabilities. Financial assets should be presented by classification as loans and receivables originated by the enterprise, held to maturity investments, held for trading, and available-for-sale (Paragraph 25). According to Paragraph 26, Bank should disclose the amount and nature of contingent liabilities and commitments. It is mentioned in the Paragraph 30 that a bank shall disclose an analysis of assets and liabilities into relevant groupings based on the remaining period at the balance sheet date to the contractual maturity date. Paragraph 33 has provided the maturity grouping of assets and liabilities as: up to 1 month, from 1 month to 3 months, from 3 months to 1 year, from 1 year to 5 years and from 5 years and above. Paragraph 34 states that in the

maturity grouping, maturity period of assets and liabilities should be same. As mention in the Paragraph 35, maturity could be expressed in terms of the remaining period to the repayment date, the original period to the repayment date, or the remaining period to the next date at which interest rates may be changed. A bank should disclose an analysis expressed in terms of contractual maturities (Paragraph 36) and if there is no contractual maturity date, bank should assume the expected date on which the assets will be realized (Paragraph 37). Paragraph 39 prescribes that management may provide, in its commentary on the financial statements, information about the effective periods and about the way in manages and controls the risks and exposures associated with different maturity and interest rate profiles.

As per Paragraph 40, a bank should disclose any significant concentrations of its assets, liabilities and off balance sheet items. Such disclosures should be made in terms of geographical areas, customer or industry group, or other concentration of risk. Bank should also disclose the amount of significant net foreign currency exposures. According to Paragraph 43, a bank should disclose about the provision for losses on loans and advances. Any amount set aside in respect of losses on loans and advances in addition to those losses that have been specifically identified or potential losses which experience indicates are present in the portfolio of loans and advances should be accounted for as appropriation of such retained earnings (Paragraph 44). Paragraph 47 states that the movements in the provision, including the amounts previously written off that have been recovered during the period, are shown separately. Any amount set aside for banking risks should

be separately disclosed as appropriation of retained earnings (Paragraph 50) and a bank should disclose the aggregate amount of secured liabilities and the nature and carrying amount of the assets pledged as security (Paragraph 53). Paragraph 55 and 56 discuss about disclosure of trust activities and related party transactions respectively. Azizuddin (2001) opined that the adoption and implementation of IAS-30 which reflects greater accountability in bank operations and greater transparency in the published financial information of banking companies. Hence, IAS 30 provides guidelines for presentation of assets, liabilities, revenues and expenses in the FS in details.

2.6 Disclosure Provisions in the Annual Reports for the Banking Companies under the BB Circulars

To ensure good corporate governance in the bank management BB issued a circular, BRPD Circular No. 16, dated July 24, 2003 for all of the Private Banks of Bangladesh titled as “Restrictions in respect of responsibilities and accountabilities of the board of directors and the CEO of private bank”. Later on this circular was replaced by BRPD Circular No. 6, dated February 04, 2010 with some changes. Banking Regulation & Policy Department (BRPD) of Bangladesh Bank issued another circular No.14, date: 25 June 2003 to amend the forms of the First Schedule of the Banking Companies Act, 1991. This is the replacement of the previous one BRPD Circular No. 03, dated 18 April 2000. So, from year 2004 the banking companies are to prepare the financial statements as per this amended forms and instructions. According to this circular banks are to prepare a Balance Sheet, a Profit


and Loss A/c, a Cash Flow Statement, a Statement of Change in Equity and a Liquidity Statement. There are 28 instructions on notes to the financial statements. As per these instructions banks are to present all assets and liabilities in details for better understanding of the user of information. Besides these, there are 22 general instructions for preparing and presenting the financial statements. It is mentioned that the adopted principles should normally be disclosed in one place. The bank should disclose the calculation of earning per share (EPS). Name the directors along with the contracts and transactions with directors and related parties should be disclosed

properly. In addition, name of the member of the audit committee, explanation regarding tax determination, procedure of conversion into local currency and highlights of the bank should be presented in the annual report. Thus, this is an extensive guideline for the banks. So, the banking companies are compelled to follow the format and instructions of this circular word by word.

2.7 Influences of SEC Notifications on Disclosure in the Annual Reports of the Listed Banking Companies

The SEC has amended Rule 12 of the Securities and Exchange Rules (SER), 1987 through a notification,

No. SEC/Section-7/SER/03/132 dated 22nd October, 1997, requiring the listed companies to prepare financial statements of an issuer of a listed security in accordance with the requirements laid down in the schedule and the IASs as adopted by the ICAB. On February 20, 2006 SEC has issued a notification, No. SEC/CMRRCD/2006-158/Admin/02-08, in order to enhance corporate governance in the interest of investors and the capital market. The companies listed with any stock exchange in Bangladesh should comply with these conditions (see Box 6) or shall explain the reasons for non-compliance.

Box 6: Report under Condition No. 5.00 of the SEC Notification No. SEC/CMRRCD/2006-158/Admin/02-08

CCondition No. TitleCompliance status

(Put √ in the appropriate column)

Explanation for non-

compliance

Complied Not Complied

1.1 Board’s Size: Should not be less than 5 (five) and more than 20 (twenty)

1.2 (i) Independent Directors: At least one tenth (1/10) and minimum of one

1.2 (ii) Independent Directors: Appointed by the elected directors

1.3 Chairman of the Board & Chief Executive: Different individuals with clearly define respective roles & responsibilities

1.4 (a) Directors’ Report to Shareholders: Fairness of the financial statements

1.4 (b) Proper books of account of the issuer company have been maintained.

1.4 (c) Appropriate accounting policies have been consistently applied and estimates are based on reasonable and prudent judgment.

1.4 (d) Compliance of International Accounting Standards

1.4 (e) The internal control system is sound and has been effectively implemented and monitored

1.4 (f) Ability to continue as a going concern. 1.4 (g) Significant deviations from last year in

operating results 1.4 (h) Key operating and financial data of at least

preceding three years


1.4 (i) Declaration of dividend1.4 (j) Details of Board Meeting1.4 (k) The pattern of shareholding should be

reported2.1 Appointment of CFO, Head of Internal Audit

and Company Secretary with clearly define respective roles, responsibilities

2.2 Attendance of CFO & Company Secretary in the meetings of the Board of Directors

3.00 Audit Committee as a sub-committee 3.1 (i) Constitution of Audit Committee3.1 (ii) Constitution of Audit Committee with Board

members including the independent director3.1 (iii) Filling of casual vacancy in the Audit

Committee3.2 (i) Chairman of the Audit Committee3.2 (ii) Professional qualification and experience of

the chairman of the audit committee3.3.1 (i) Reporting on the activities of the Audit

Committee 3.3.1 (ii) (a) Report on conflicts of interests3.3.1 (ii) (b) Reporting of any fraud or irregularity to the

Board of Directors3.3.1 (ii) (c) Reporting of violation of laws, rules and

regulations3.3.1 (ii) (d) Reporting of any other matter which should be

disclosed to the Board of Directors immediately

3.3.2 Reporting of Qualified point to Commission3.4 Reporting of activities to the Shareholders and

General Investors4.00 (i) Non-engagement of external auditors: In

appraisal or valuation 4.00 (ii) Non-engagement of external auditors:

Information systems design and implementation

4.00 (iii) Non-engagement of external auditors: Book-keeping

4.00 (iv) Non-engagement of external auditors: Broker-dealer services

4.00 (v) Non-engagement of external auditors: Actuarial services

4.00 (vi) Non-engagement of external auditors: Internal audit services

4.00 (vii) Non-engagement of external auditors: Any other service that the Audit Committee determines

Source: SEC Notification: No. SEC/CMRRCD/2006-158/Admin/02-08, Dated February 20, 2006


The SEC has issued one more notification, no. SEC/CMRRCD/2008-181/53/Admin/03/28, dated June 4, 2008, to increase transparency in the state of affairs of said companies and in the interest of investors and the capital market. According to this notification the issuer companies shall include a clear and unambiguous statement of the reporting framework on which the accounting policies are based; a clear statement of the company’s accounting policies on all material accounting areas; an explanation of where the accounting standards that underpin the policies can be found; a statement that explains that the financial statements are in compliance with international Financial Reporting Standard (IFRS) issued by the International Accounting Standard Board (IASB), if this is the case; and a statement that explains in what regard the standards and the reporting framework used differs from IFRS, as issued by the IASB, if this is the case, in its yearly and periodical financial statements. If any bank fully complies with these two guidelines it seems that the bank is complying with most of the requirements.

2.8 The Stock Exchanges of Bangladesh and Financial Reporting

It has been said that high standards of financial reporting is one of the important characteristics of developed market economies and there is a strong correlation between the level of disclosure and well-developed securities markets (Gray et al., 1984). Levitt (1998) thinks that the success of capital market is directly dependent on the quality of accounting transparency and disclosure systems. In the case of developed countries, requirements of the stock exchange can significantly affect disclosure

aspect of financial reporting. In Bangladesh, the listing requirements of the stock exchanges does not prescribe any additional disclosure requirements governing in financial reports as a part of listing requirements other than the legal disclosure requirements i.e., the Companies Act, 1994 and the SER, 1987 (Hossain, 1999).

With the approval of the SEC the Dhaka Stock Exchange made the notification, no. SEC/Member-II, dated 8th April 1996, in exercise of the powers conferred by section 34 (1) of the Securities and Exchange Ordinance, 1969 namely Listing Regulations of the Dhaka Stock Exchange Limited. According to Regulation 6, statement of audited accounts for the last 5 years or for a shorter number of years if the company is in operation only for such shorter period, statement showing the cost of project and means of finance shall be submitted to DSE at the time of application for listing or any time on demand by DSE. As per Regulation 19 a listed company shall hold its annual general meeting and lay before the said meetings balance sheet, profit and loss account and cash flows statement within nine months following the close of its financial year and in keeping with the provisions of the Act. As per Regulation 36 (8) when a dividend (Interim or Final) is declared after the close of a financial year, such announcement to DSE shall be accompanied by a statement showing comparative figures of the Turnover figure/Gross operating profit; Gross profit; Income from other sources; Provision for Taxation; Net profit after Taxation. Regulation 36 (9) states that the Company shall make available to DSE Financial Statements before the expiry of 3 months from the end of each financial year even if

the figure are provisional and such financial statements shall be signed by the Chairman or Chief Executive Officer and/or the Finance Director or in his absence the Chief Accountant. The Chittagong Stock Exchange (CSE) began its journey in 10th October of 1995 as a not-for-profit public limited company. CSE has issued regulations namely Listing Regulations of the Chittagong Stock Exchange Limited – CSE. Disclosure provisions in this regulation are similar to the provisions of Listing Regulations of DSE. So, there is no additional disclosure requirement but the financial statements have to be authenticated by Chairman, CEO, Finance Director or Chief Accountant.

3. Case Studies on Disclosure by the Companies

3.1 Case 1: AB Bank Limited

AB Bank Limited (ABBL) is one of the first generation private commercial bank. It was incorporated in Bangladesh on December 31, 1981 as a public limited company. The share of this bank is listed with DSE and CSE from December 28, 1983 and January 1996 respectively. It started Islamic Banking Operation on December 21, 2004. Composition of Board and Committee, mentioning Board of Directors, Executive Committee, Audit Committee, Management Committee and Shariah Council, are presented under Corporate Management part in the Annual Report 2009 of the Bank. Subsequently the report presented Director’s Statement of Responsibilities, Report of the Audit Committee, Report of the Executive Committee and Report of the Shariah Council. In the


Chairman’s Message some important business activities are mentioned. Next part of the report is Corporate Governance Disclosure (CGD) including attendance in the Board of Directors Meeting, Executive Committee Meeting, Audit Committee, Shareholding pattern and CGD Checklist. The Bank complied with all relevant conditions of the SEC Notification No. SEC/CMRRCD/2006-158/ Admin/02-08. Status of compliance of BB guidelines (BRPD Circular No. 06, dated February 04, 2010 that is replacement of the BRPD circular no. 16 dated July 24, 2003) is presented as an annexure. Then the report presented Financial Highlights for two years and key Financial Data for five years with graphical presentation. In the Economic Impact part of the Report, along with other information, a Value Added Statement, an Economic Value Added Statement and a Statement

of Market Value Added are given. There is a separate chapter on Basel II Disclosure under Pillar III in accordance with the BRPD Circular No. 09/2008. Directors’ Report and Auditors’ Reports are presented before the Financial Statements. Some important information for the shareholders is given in the Directors’ Report within 32 pages of the report. It is stated in the Auditors’ Report that the financial statements have been prepared in the format prescribed by BB vide Circular no. 14, dated June 25, 2003 and in accordance with relevant IASs and BFRSs and comply with the Companies Act, 1994, the Banking Companies Act, 1991, Rules and Regulations issued by BB, SER 1987 and other applicable laws and regulations.

To comply with BAS 27 the Bank prepared both consolidated and separate financial statements. For the purpose of preparing FS the Bank has followed the prescribed

format of BRPD Circular No. 14/2003. As an integral part of the FS the Bank provided 44 notes to explain the policy and procedure. In the Notes to the Financial Statements the following points are discussed, alongside others:

The Bank and its activities

Significant accounting policies and basis of preparation of FS

Basis of valuation of assets

Capital, Reserve, liabilities and provisions and basis of their valuation

Segment Reposting under BFRS 8

Compliance report on BAS and BFRS

Events after the Balance Sheet date as per BAS 10

Related Party Disclosure

Name of directors and the entities in which they have interest

Concentration of Loans and Advances

Shareholdings information

Market discipline disclosure under Pillar III of Basel II

Highlights of the overall activities of the Bank

Conversion of foreign currency in to local currency, etc.

3.2 Case 2: Prime Bank Limited

The vision of Prime Bank Limited (PBL) is to be the best private commercial bank in Bangladesh in terms of efficiency, capital adequacy, assets quality, sound


management and profitability having strong liquidity (PBL, 2009). It was established in 1995. PBL went for Initial Public Offering (IPO) in 1999 and its share is listed with DSE and CSE. PBL started Islamic Banking Business from December 18, 1995. In the beginning part of the annual report of the year 2009, the bank presented a list of all directors with their particulars. Composition of Board of Directors, Executive Committee, and Audit Committee are presented in page 16 of the report. Then the report has presented the Group Chairman’s Review, Managing Director’s Round up providing information of important business activities, significant changes with some of the policy issues. Report of the Audit Committee along with Report of Shariah Council is also presented here. In the Corporate Governance part the report discussed about the board of directors, executive committee, audit committee, retirement and re-election of directors, delegation of power, management, number of Board Meeting and attendance of Directors, the pattern of shareholding along with name wise details and other information. It also presented corporate governance disclosure checklist according to SEC Notification No. SEC/CMRRCD/2006-158/Admin/02-08. Subsequently a compliance status of BB Guidelines for Corporate Governance, as BRPD circular no. 16 dated July 24, 2003, is presented.

As a part of shareholders’ information Financial Highlights-Group, Financial Highlights-PBL, Key Financial Data and Key Ratios along with market price information are presented after corporate governance. After that, bank has disclosed information in accordance with

third pillar of Basel II though it is not mandatory. In Annual Report 2009 of the bank, Directors’ Report 2009 with all material information is presented in page 94 to 117. Auditors opined that the financial statements (FS), prepared in accordance with BASs, give a true and fair view of the state of the Bank’s affairs and the results of its operations and its cash flows for the year ended and comply with the Banking Companies Act, 1991, the rules and regulations issued by BB, the Companies Act, 1994, the SER 1987 and other applicable laws and regulations (Prime Bank, 2009). Both consolidated financial statements and financial statements of the Bank are prepared in accordance with the format prescribed in BRPD Circular No. 14/2003. As a part and parcel of FS a total number of 48 notes are provided by the Bank. Along with others the following information are given in the notes:

Status of the bank and principal activities

Significant accounting policies and basis of preparation of FS

Basis of valuation of assets, liabilities and provisions

Information about business and geographical segments

Compliance report on BAS and BFRS

Concentration of Loans and Advances

Shareholdings information

Disclosure on Audit Committee

Related Party Disclosure

Events after the Balance Sheet date

Name of directors and their interest in different entities, etc.

4. Findings of the Case Studies

4.1 Compliance with the Companies Act, 1994

Both banks prepared the required components of financial statements like, Balance Sheet, Profit and Loss Accounts, Cash Flow Statement, Statements of Change in Equity and Liquidity Statement with necessary notes to the FS. Directors’ Report with necessary information has been prepared by the both banks.

They have made available information about the bank and principal activities. As the Auditors’ Report of the both bank are unqualified they do not need to make comment on that. Both of the banks described the accounting principles that have been followed for preparing FS in one place. They provided information about the contingent liabilities of the bank. Both banks have discussed the depreciation policy.

4.2 Compliance with the Banking Companies Act, 1991

All of the required statements like, Balance Sheet, Profit and Loss Accounts, Cash Flow Statement, Statement of Change in Equity, Liquidity Statement and Explanatory Notes to the FS were prepared by the both banks. They presented the highlights of the overall activities of the bank with 22 items as prescribed in this Act. Both of them provided information regarding audit committee. They complied with other provisions that are also mandatory under the Companies Act, 1994.

4.3 Compliance with IASs, BASs, IFRSs or BFRSs

Both of the banks complied with all the required BASs/IFRSs. Even BAS 23 on Borrowing Costs adopted by ICAB but effective on or after January 1, 2010 but both banks complied with this. Similarly, standard on Financial Instruments: Presentation (BAS 32) adopted and effective date is on of after January 1, 2010 is followed by both ABBL and PBL. In the same way, BAS 39, regarding Financial Instruments: Recognition and Measurement is complied by both banks even though it is effective from January 1, 2010. Table 1 shows the compliance status of BAS and BFRS/IFRS by ABBL and PBL.


BAS 36 Required Complied Complied



BAS 39 N/R Complied Complied






BAS 20 N/A N/A N/A







BAS 28 Required Complied N/A

BAS 29 N/R N/A N/A


BAS 31 N/A N/A N/A




BBAS/BFRS Legal Status* Status of ABBL* Status of PBL*


BAS 2 Required N/A Complied




BAS 11 N/A N/A N/A


Table 1: Compliance Status with BAS/BFRS vis-à-vis IAS/IFRS



4.4 Compliance with the IAS 30 (BAS 30) and/or BRPD Circular No. 14/2003

BRPD Circular No. 14/2003 prescribes the format of financial statement along with notes and general instruction in accordance with IAS 30. So, compliance with BRPD Circular No. 14/2003 ensures the compliance with the material part of IAS 30. Major finding regarding compliance with BRPD Circular No. 14/2003 are as follows:

Balance sheets of the banks are prepared in the format unerringly prescribed in the circular.

Both banks have prepared their Profit and Loss Account, Cash Flow Statement and Statement of Change in Equity in precisely to the Circular.

Asset and Liability Maturity Analysis is done in the Liquidity Statement as maturity grouping of upto 01 month, 1-3 month, 3-12 month, 1-5 years and more than 5 years which is prescribed by BB.

All notes are provided by ABBL and PBL in accordance with the instructions of the circular.

They disclosed significant concentration of assets, liabilities or off-balance sheet items.

Calculation of Earning Per Share (EPS) is shown by both banks.

They presented the names of the Directors together with a list of entities in which thy have interests.

Name of members of the audit committee are provided by

both companies. Explanation regarding tax

determination, detailed explanation about the procedure of conversion into local currency, reconciliation of books of accounts in regard to inter-bank and inter branch transaction etc. are shown in both reports.

They comply with other provisions that are also mandatory under the Banking Companies Act, 1991 and/or the Companies Act, 1994 including highlight of the bank

4.5 Compliance with the Securities and Exchange Ordinance, 1969, SER, 1987, SEC Notification, BRPD Circular regarding Corporate Governance and Stock Exchanges Requirements

Both of the reports presented the Corporate Governance Disclosure check list mentioning full compliance as required by SEC. There is another Corporate Governance Disclosure check list mentioning full compliance as required by BB. IFRS/IAS compliance statement is displayed in both reports. All other requirements, similar to other regulations, are followed by two banks.

* N/A for Not Applicable, N/R for Not Required as it is not effective before January 2010Source: ICAB, 2011, Annual Report of ABBL, 2009, Annual Report of PBL, 2009

BAS 41 N/A N/A N/A

IFRS 1 N/R N/A N/A

IFRS 2 N/A N/A N/A

IFRS 3 N/R Complied N/A

IFRS 4 N/R N/A N/A

IFRS 5 N/A N/A N/A

IFRS 6 N/A N/A N/A



IFRS 9 N/R N/A N/A

5. Conclusion and Recommendations of the Study

Banking industry is mostly regulated by Bangladesh Bank (as central bank of Bangladesh) and Securities and Exchange Commission (as a regulator of security market) in regards of disclosure in the annual report. To some extent the Registrar of Joint Stock Companies and Firms (RJSC), Dhaka Stock Exchange (DSE) and Chittagong Stock Exchange (CSE) regulate the disclosure issues. Among others, BB guidelines (under the Banking Companies Act, 1991) and SEC guidelines (under Securities and Exchange Ordinance, 1969) are very important directions for preparation and presentation of annual reports of the listed banking companies in Bangladesh. Studied annual reports of two banks show that they are complying with most of the regulations. In some cases they are proactive to comply with

the regulations (Basel II, BAS 23, BAS 32, BAS 39, IFRS 3, IFRS 7, IFRS 8, etc.). On the basis of sample result it may be assumed that all of the banks are complying with regulations regarding disclosure in their annual reports.

It is good indication that most of the regulators are referring BAS/BFRS vis-à-vis IAS/IFRS as their expected guidelines. But it is noted that there is some haziness in some regulations. For example, Section 192 of the Companies Act, 1994 refers Schedule 12 to prepare statement instead of referring the Banking Companies Act, 1991. But Schedule 12 does not prescribe complete format. Securities and Exchange Ordinance, 1969, SER, 1987, Listing Regulations of DSE and Listing Regulations of CSE do not specify disclosure requirements for the Banking Companies Act, 1991 exclusively. It is assumed that the disclosure pattern of the banking companies is different

from other organization because of their business nature. It would be very easy for banks to comply with disclosure requirements if the Banking Companies Act, 1991 compiles all of the disclosure requirements and all regulators refer that particular Act as their requirements. If this approach is followed then repetitions will be minimized and disclosure requirements will be specific, concrete and complete. Bangladesh Bank may take initiative to issue a guideline for the banking companies considering all of the existing regulations. To cope up with changing scenario other regulatory authorities should collect opinion from BB in formulating any guidelines or policy for the banking companies. Therefore, a single regulation should consider and compile all disclosure requirements of different regulators and that particular regulation should be referred by all regulators regarding banking companies’ disclosure.

This study is still exploratory in nature. Case study method is used to know the extent of disclosure and compliance with the regulatory requirements. The case study method is limited to the use of an alternate method to investigate disclosure compliance. Further research may be conducted using large sample. No comprehensive list of disclosure items has been prepared and compliance examination. Item-wise list of disclosure requirement may be formulated and on the basis of that list compliance extent may be examined. This paper does not use any statistical tool for analyzing data. As this paper compiled most of the provisions regarding disclosure under different laws, regulations and guidelines any user can know the disclosure


Table 2: Compliance Status with Different Regulations by Banks

Source: Researcher’s own findings

SSl Regulations ABBL PBL

1. The Companies Act, 1994 Complied Complied

2. The Banking Companies Act, 1991 Complied Complied

3. IAS/ BAS/IFRS/BFRS Other than IAS 30 Complied Complied

4. IAS 30 (BAS 30) Complied Complied

5. BRPD Circular No. 14/2003 Complied Complied

6. Securities and Exchange Ordinance, 1969 Complied Complied

7. Securities and Exchange Rules, 1987 Complied Complied

8.SEC Notification No. SEC/Section-7/SER/03/132 dated 22nd October, 1997

Complied Complied

9. SEC Notification No. SEC/CMRRCD/2006-158/Admin/02-08, dated February 20, 2006.

Complied Complied

10. SEC Notification No. SEC/CMRRCD/2008-181/53/Admin/03/28, dated June 4, 2008

Complied Complied

11. BRPD Circular No. 16/2003 or BRPD Circular No. 06/2010

Complied Complied

12. Listing Regulations of DSE and/or CSE Complied Complied13. BRPD Circular no. 20/2009 Complied Complied


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The Author is a Lecturer, Bangladesh Institute of Bank Management

List of Banking Companies Listed in Dhaka Stock Exchange Limited

Source: www.dsebd.org/companylistbyindustry.php?industryno=11,cited on May 9, 2011, at 12 pm

Annexure A

1. ABBANK (AB Bank Limited )2. ALARABANK (Al-Arafah Islami Bank )3. BANKASIA (Bank Asia Ltd.)4. BRACBANK (BRAC Bank Ltd.)5. CITYBANK (City Bank)6. DHAKABANK (Dhaka Bank)7. DUTCHBANGL (Dutch-Bangla Bank)8. EBL (Eastern Bankoi)9. EXIMBANK( Export Import (Exim) Bank of Bangladesh)10. FIRSTSBANK (First Security Islami Bank Limited)11. ICBIBANK (ICB Islamic Bank Limited)12. IFIC (IFIC Bank)13. ISLAMIBANK (Islami Bank)14. JAMUNABANK (Jamuna Bank Ltd.)15. MERCANBANK (Mercantile Bank Ltd.)16. MTBL (Mutual Trust Bank Ltd.)17. NBL (NBL)18. NCCBANK (NCCBL)19. ONEBANKLTD (One Bank Limited)20. PREMIERBAN (The Premier Bank Ltd.)21. PRIMEBANK (Prime Bank)22. PUBALIBANK (Pubali Bank)23. RUPALIBANK (Rupali Bank)24. SHAHJABANK (Shahjalal Islami Bank Ltd.)25. SIBL (Social Islami Bank Limited)26. SOUTHEASTB (Southeast Bank)27. STANDBANKL (Standard Bank Limited)28. TRUSTBANK (Trust Bank Limited)29. UCBL (United Commercial Bank Ltd.)30. UTTARABANK (Uttara Bank)


The leasing standard IAS 17 is deemed to be in contradiction to the conceptual framework of accounting. Its complete disregard for the recognition of obligations arising through lease transactions has confused and anguished users’. To remedy this problem the IASB began work in 2009 on the development of a new standard to correct the issues and restore users’ faith in lease transactions. However, pressure from large organisations and stakeholders haltered the development of a new standard. At present sitting in 2011, we have moved no closer to a new standard then the starting point back in 2009.

The volume of leases was $760 billion in 2007 (IASB, 2009) this is of significant value, yet users do not believe that the current standard is accurately reflecting the economic substance of the leasing transactions it was designed to represent. From this concern, the IASB began the process of looking into and developing a new lease standard. The standard was expected to better align with the conceptual framework but following the discussion paper and commentary, little more has been done to date.

The need to address the standard is best summed up by Sir David Tweedie (chair of the IASB):

“On leasing there is some good news - the standards internationally are harmonized. The bad news is that they are absolutely useless! One of my great ambitions before I die is to fly in an aircraft that is on an airline’s balance sheet.” (Ken Spencer Memorial Lecture March 2007 (page 9)

In 2009, work began to correct the standard and look to a better alternative. Issues with the standard included: financial statements do not depict clearly the effects of an operating lease, similar transactions are accounted for differently, and the statements provide opportunities to structure transactions in order to achieve a particular lease classification and financial effect. It was seen that the standard had become too reliant on subjective judgments and rigidly defined thresholds (Deloitte, 2009). Such allowances within the standard allowed for firms to structure transactions in a way to achieve a desired accounting outcome has removed faith by users’ and the quality of reporting became questionable. Further reinforced by, firms that have lower quality financial reporting have a higher propensity to lease than purchase assets (Beatty, Liao, & Weber, 2010). The negative association with the leasing of assets and the planning involved in the structuring of transactions points as to why the IASB thought it was time to address

Don't mind the contradictions:IAS 17 Lease

Dr Muhammad Nurul HouqeEmma Jayne Laird


the concerns with reasonable urgency.

Work on the lease standard has been brewing for some time and it was nothing new for it to be deemed inconsistent with the conceptual framework. In the United States in 2005, the SEC set out to clarify leasing issues due to the vast number of restatements due to incorrect application of the leasing standard. Investigation into the misstatement shows how managers were structuring transactions to manage earnings in an area where the accounting standard was thought to be clear and precise (Hyatt, 2007). What may either be seen as a saving grace or further proof of an inadequate standard a study concluded that many organizations were not intestinally misapplying GAAP but rather following widely used and recognized accounting practices (Hyatt, 2007). Clearly, the standard had some issues surrounding its use within organizations.

Even supporters of the current standard admit that it does not accurately reflect and work within the conceptual framework:

“the view that, regardless of whether substantially all the benefits and risks of ownership are transferred, a lease, in transferring for its term the right to use property, gives rise to the acquisition of an asset and the incurrence of an obligation by the lessee which should be reflected in his financial statements” (cited from Weidner, 2000).

The need for a change in the standard appears to be widely accepted, it can be assumed that the wider accounting community will welcome proposed changes. However, this was not to be the case as is to be seen.

The new standard was to be developed as a joint IAS and FASB project. The joint project was talked up to be a fundamental change in the leasing standard. The boards released a discussion document for comment on 19 March 2009. With the preliminary view that the existing accounting lease model was inconsistent with the asset and liability definitions in the conceptual framework (IASB, 2009). No matter how a lease is classified, it will always create rights and obligations that meet the definition of assets and liabilities as in the conceptual framework. As such, each lease should recognise the assets and liabilities in the financial statements. The proposed new standard would eliminate the operating lease classification, as such ‘off balance sheet’ leases would be removed. Under the proposed new standard, a lease would result in the lessee recognising: an asset for its right to use the leased item (right of use of an asset) and a liability for its obligation to pay rentals (IASB, 2009).

The proposed new standard would remove all choices available for the classification of a lease. This would remove the judgement calls made by management as to the classification and the ‘off balance sheet’ leases that are commonly used. The complete blanket rule of treating all leases, as operating leases would remove any loopholes that otherwise would be exploited given an opportunity. Previous evidence from earlier changes to the standard has shown that if accounting standards provide a loophole lessees will exploit it (Lipe, 2010). Any new standard would need to acknowledge the loopholes or as proposed completely remove their existence. The stance taken to remove all opportunities to manage the leases for a preconceived result is a move towards tightening up on financial statements by the IASB.

Submissions were accepted on the discussion paper until 17 July 2009. During this time, over 300 were received from various stakeholder

ON LEASING

THERE IS SOME GOOD

NEWS - THE

STANDARDS

INTERNATIONALLY

ARE HARMONIZED.

THE BAD NEWS IS

THAT THEY ARE

ABSOLUTELY

USELESS! ONE OF MY

GREAT AMBITIONS

BEFORE I DIE IS TO FLY

IN AN AIRCRAFT THAT

IS ON AN AIRLINE’S

BALANCE SHEET.


groups, accounting professionals and organisations. Many of the submissions shared the same concerns surrounding the timing of the exposure draft and the expected new standard. KPMG supported the proposed changes but question if it the best use of time at present. The timeline developed does not allow for a fully comprehensive standard dealing to all the issues to be developed (KPMG, 2009). The view on timing was shared with the other Big-4 Firms. The disagreement over the leasing standard by accounting firms is to be expected and given that, 80% of American companies lease capital assets (Gavazza, 2008) the accounting firms they are represented by would support a standard that keeps clients more agreeable.

McDonalds held a strong disagreement to the standard given the large value that they have tied up in leases. McDonalds is the lessor of over 18,000 locations and lessee for 13,500 locations (McDonald's, 2009). Given the wealth tied up in the contracts (many of which have a 20-year lease term) it can be easy to see why such a disapproving stance is taken against the proposed

changes. The amounts that would be otherwise be included on the balance sheet should the proposed standard come into effect, instead should allows firms to choose whether to disclose the obligations in a separate statement or in footnotes if fitting (McDonald's, 2009). Another powerful stakeholder with concerns surrounding the changes in the leasing standard was the Aviation Working Group. The group deals largely with firms who are lessors in the aviation sector. The large value tied up in lease contracts for aeroplanes the strong disagreement is easily understood. Aeroplanes represent billions of dollars and are generally not found on the balance sheets of airlines due to the sheer magnitude of the value and the impact it would have on the financial statements and relevant analytical ratios. The Aviation Working Group also raised the further issue surrounding the treatment of debt financing when compared to a finance lease. In essence, the two transactions are the same but would be treated differently under the proposed standard (Group, 2009).

It was expected that an exposure draft would be available in 2010 and a new lease standard available

in 2011. However, pressure from these large powerful groups has pushed the development of the lease standard back. The pressure from the large stakeholders and corporations haltered the development of a new standard but further exposure drafts and discussion documents have been developed. In 2010, the IASB once again in partnership with the FASB released an exposure draft in August. After the exposure draft, the IASB contacted various stakeholders through various roundtable meetings, preparer questionnaires, workshops and podcasts. Through an extended period of contact, they were able to contact preparers, users, accounting firms’ and industry groups across a broad selection of industries (IASB, 2011). It is hoped that this extended period of consultation will be inform stakeholders and ensure their commitment to the new standard.

The understanding of the information by the market under the current lease model is of concern. The financial reports of a firm will affect the economic decisions made by the users. In leasing, the information quality provides an interesting area of focus for which managers’ to base decisions around. A financing lease does not show the effects of the contractual obligation on the balance sheet. Therein lays an opportunity for firms to disclose the truth nature of the transaction through the notes to the accounts (Zechman, 2010). The motivation to disclose such information is further linked to compensation schemes implemented within the organisation (Zechman, 2010). The proposed standard would remove the option to disclose information only in the notes and remove any motivation by managers who may have options in disclosing the true nature of a lease transaction.

Dr Muhammad Nurul HouqeEmma Jayne LairdSchool of Accounting & Commercial Law,Victoria University of Wellington, NZ.


It may argued that there is no need to change the standard as auditors will surely use their professional judgement to ensure that the application if IAS 17 is consistent. However, an American study found major accounting firms (Deloitte, Ernst & Young, PricewaterhouseCoopers, KPMG, BDO Seidman and Grant Thornton) all signed off on improper lease accounting (Hyatt, 2007). If the major firms were not able to pick up when the standard was incorrectly applied, how can users have any faith that correct judgements are being made.

The IASB has stated that it has heard the problems that came out from the previous commentary in 2009. From here, it has been established that the ‘right model’ should be developed (IASB, 2011), although what the right model is and how it will differ from the current model is yet to be established. Re-deliberations surrounding the definitions of key lease terms need to be completed and concerns around the lessor model need to be ironed out further (IASB, 2011). It is expected that in the third quarter of 2011 a ballot be to be competed on the proposed standard with a new issue in the fourth quarter 2011. There is a slight sense of déjà vu as this was the process to develop a new standard by 2010. Only time will tell if this time the process in completed and the new standard is issued, one can only hold out hope.

On the leasing standard, several attempts have been made to develop a new standard. However, pressure from various groups has delayed the process and sent it back to the start yet again. The latest round of discussion documents is circulating one can only hope that the new standard so needed is delivered. The

inconsistencies with the conceptual framework do nothing for the discipline of accounting other then show incompetency and an inability to work within the bounds we have set for ourselves as the conceptual framework. The failure to develop a standard shows little more than that, the needs of users are put second to the desires of large corporations and power players. All that is left to do now is sit and wait until the end of 2011 when maybe the new standard will finally grace us with its presence.

References

Beatty, A., Liao, S., & Weber, J. (2010). Financial Reporting Quality, Private Information, Monitoring, and the Lease-versus-Buy Decision. The Accounting Review Vol. 85, No4 , 1215-1238.

Deloitte. (2009, April). IAS Plus Update. Retrieved May 2011, from IAS Plus: http://www.iasplus.com/agenda/leases.htm

Gavazza, A. (2008). Asset Liquidity and Financial Contracts: Evidence fromm Aircraft Leases. ssrn: available at http://ssrn.com/abstract=931458 , 1-50.

Group, A. W. (2009). Aviation Working Group – Comments on Leasing Project. London: Aviation Working Group.

Hyatt, T. (2007). An Exmination of the Recently Restated Financial Statements Due ti Inappropiate Lease Accounting. Academy of Accounting and Fiancial Studies Journal Vol 11 No3 , 78-92.

IASB. (2009, March). Discussion Paper Leases Preliminary Views. Discusssion Paper . London, United Kingdom: International Accounting Standards Board.

IASB. (2011, April). IASB. Retrieved May 12, 2011, from IASB Meeting Summaries and Observer Notes: www.iasb.com

IASB. (2011). Leases Outreach Update 2011. London: IFRS Foundation.

IASB. (2009). Press Release - IASB and FASB launch public consultation on a future standard on lease accounting. London: International Accounting Standards Board.

IASB. (2009). Snaphot: Leases - Preliminary Views. London: International Accounting Standards Board.

KPMG. (2009). International Accounting Standards Board and Financial Accounting Standards Board Discussion Paper Leases – Preliminary Views. London: KPMG IFRG Limited.

Lipe, R. (2010). Lease Accounting Research and the G4+1 Proposal. Accounting Horizons Vol 15 No 3 , 299-310.

McDonald's. (2009). Request for Comments on a Discussion Paper, Leases: Preliminary Views. Oak Brook: McDonald’s Corporation.

Weidner, D. J. (2000). Synthetic Leases: structured Finance, Fianancial Accounting and Tax Ownership. Journal of Corporation Law Vol. 25 , 447-453.

Zechman, S. (2010). The Relation Between Voluntary Disclosure and Financial Reporting: Evidence from Synthetic Leases. Journal of Accounting Research Vol


Value Added Tax (VAT) is a tax on value addition. It was introduced first in France in 1954 and so far more than 140 countries of the world have adopted it. Bangladesh introduced VAT in 1991 as a replacement of Sales Tax and Excise Duty. Initially VAT was imposed at manufacturing and import stage and has since been expanded to retail stage. This expansion of the VAT net caused many complications and reform of the law is urgently needed. Instead, the government has issued hundreds of General Orders, Special Orders and Statutory Regulatory Orders on an ad hoc basis. Consequently the law has become more complicated for regulatory authorities and taxpayer alike.

In view of this, the Government has formulated a draft VAT Act 2011 (draft Act) with the expectation that this will be implemented in 2012. A comparative commentary on the salient features of the proposed Act is given below:

Structure

Value Added Tax Act 1991 comprises 73 sections and 43 rules. These sections and rules were not organized subject-wise. The draft Act has been expanded to 193 sections and structured into different chapters according to subject. The Rules

are expected to be published soon after the promulgation of the Act. This elaboration and re-organization has made the Act friendlier to all concerned.

Language used

The VAT Act was formulated in Bangla in 1991. In view of globalization and to encourage Foreign Direct Investment, English is considered the appropriate language for a law related to trade and commerce. While most business laws have an authentic English version, in case of VAT laws this could not be completed even 20 years after promulgation. On the other hand, the draft VAT Act 2011 has been formulated in English – a move appreciated by the business community.

RegistrationThe general rule under the existing law requires separate registration for each place of business activity operated by a person. The draft Act 2011 provides for a single registration for all economic activities, provided separately identifiable records and accounts are kept for the branches and divisions. This will reduce the inconvenience of taxpayers.

Determination of price

Under the existing law, in case of

An Overview on DraftValue Added Tax Act 2011

Abdul Khalek FCA


imported goods, the base value is ascertained by adding the amount of import duty, supplementary duty and all other duties and taxes (if any), except Advance Income Tax (AIT). In case of local supply of goods, VAT is leviable on the price to be realized from customers, inclusive of input cost, all expenses and profit of the taxpayers, discounts, commissions, fees and all duties and taxes, excluding VAT. There are provisions for tariff value, truncated value and VAT on retail price including VAT. In case of services, VAT is leviable on total receipt.

As per the draft Act, the VATable value of imported goods is the summation of assessment value, insurance, freight, cost of services ancillary or incidental to import, customs duty, supplementary duties and other taxes, levies, fees, or fiscal charges other than VAT and AIT payable on the import of the goods. In case of local supply of goods, immovable property and services, VAT is leviable on the consideration reduced by the amount of tax fraction. In case of the supply of imported services by a related person, VAT is leviable upon the fair market value and, in other cases, on consideration.

The changes in the draft law appear to be positive but the provision for fair market value may create confusion.

Price declaration

Presently, price declaration with reference to the value base for VAT and the input-output co-efficient of the products are required to be submitted in prescribed format (Mushak 1, 1 Kha, 1Ga, 1 Gha), which the authorities are required to approve within 15 working days. Further, the tariff value and the truncated base system are distortions of the VAT system as

problems arise in the value chain for other stakeholders following the credit methodology. In the draft Act price declaration has been discarded. Instead, the taxpayers would notify the current price and input-output coefficient. The base for taxation has become the transaction price. Tariff Value and truncated base system have also been discarded. This would be great relief for taxpayers from procedural complexities.

Deduction at source

Currently VAT deduction at source is applicable in case of services. Imported services, comprising royalty and technical know-how, are included in deduction at source. The explanation required to clear the ambiguity regarding the payee i.e. whether the service provider or recipient is to suffer the VAT is yet to be given. The net has been widened in the draft Act to include government entities, NGOs, banks, insurance companies and other financial institutions, limited companies and post secondary institutions and makes the following additional provisions.

Withholding would be mandatory in a supply under:

- an agreement by tender- a supply under an ongoing supply

agreement, or- a supply or set of related supplies for

which consideration exceeds Tk. 25,000.

Withholding entities would not be permitted to take supply unless:

- person is registered, and - has a valid VAT honor card.

Obligation to withhold by a withholding entity:

- one third of the payable VAT amount to withheld

- to issue a certificate- withheld amount to be accounted

for in the VAT return.

THE VAT ACT

WAS FORMULATED IN

BANGLA IN 1991. IN

VIEW OF

GLOBALIZATION AND

TO ENCOURAGE

FOREIGN DIRECT

INVESTMENT,

ENGLISH IS

CONSIDERED THE

APPROPRIATE

LANGUAGE FOR A LAW

RELATED TO TRADE

AND COMMERCE.

WHILE MOST

BUSINESS LAWS HAVE

AN AUTHENTIC

ENGLISH VERSION, IN

CASE OF VAT LAWS

THIS COULD NOT BE

COMPLETED EVEN 20

YEARS AFTER

PROMULGATION.


VAT is an output tax. Deduction of VAT from the suppliers of input is a distortion from the VAT principle. It is a woe for honest taxpayers which would be aggravated by the proposed law.

VAT payment/ Treasury deposit

Under the existing system, advance deposit must be made to the Treasury and the output VAT is adjusted through the current account when products are supplied and services are provided. VAT payment is only possible through Treasury Challan. The system proposed in the draft Act would be an advancement towards global standards: treasury deposit will be completed at the time of Return submission and there is a provision for VAT payment through electronic bank transfer, credit card and certified bank cheques.

Recovery of VAT from individuals leaving Bangladesh

Presently there is no provision to restrict a person from leaving Bangladesh while any tax payable by him remains unrecovered. As per the rules in the draft Act, the respective Commissioner may issue a certificate of non-compliance, stating the outstanding tax debt to the immigration officer, to prevent the defaulter from leaving the country. The new law sounds very tough for taxpayers. However, it would be rational to restrict the provision only to the amount of the agreed VAT liability.

Offenses, penalties and punishments

As per existing laws, there are provisions for penalty for revenue loss of the Government and punishment in case of an offence of a criminal nature. Provisions in the draft Act allow for severe penalties and punishment for offences relating to registration, enlistment, submission of return, etc. The penalties and punishments appear to be drastic, particularly for SMEs.

Tax Clearance Certificate (TCC) and Honor card

A person who submits all returns of the previous financial year are entitled to a VAT honor card. As per proposed Act, in addition to VAT honor card, Tax Clearance Certificate will also be issued to good taxpayers. This friendly move would be encouraging for honest taxpayers.Extension of VAT payment and VAT return deadlines at the time of natural disaster

In the event of natural disaster, there is no provision that allows extension of time for payment of VAT or submission of VAT Return. Provision has been made in the proposed Act to allow a registered person to pay VAT and submit Return even after the due time, in case of occurrence of natural disaster, subject to the permission of the Commissioner.

Outsourcing

Outsourcing is a modern practice of managing business operations. In the existing Act there is clear and detailed provision regarding outsourcing. However, there is no clear explanation regarding outsourcing in the proposed Act. This may create complexity and confusion since outsourcing is a common practice. A clear explanation is required to ease tax payment.

VAT refund

VAT refund is a multifaceted and compound system which has been simplified in the proposed Act. Excess amount of total decreasing adjustment over the total output and increasing adjustment in respect of:- construction, building or


property development shall be carried forward indefinitely.

- an excess may be carried forward or be deducted over 6 (six) tax periods.

VAT paid in excess of payable amount will have decreasing adjustment instead of a refund. Turnover tax paid in excess is entitled to deduction instead of refund. This is an advancement towards standard practice.

Appeal division and reference

Currently, an appeal to the Commissioner or to the Tribunal must be made within 90 (ninety) days of order. Reducing the scope of taxpayer for appeal, the draft Act allows for an appeal to be made to the Commissioner (Appeal or Tribunal) within 60 (sixty) days of the order.

Post-supply adjustments for adjustment events

There is no provision for

post-supply adjustments in the existing law. However, the input tax credit is allowed under certain conditions. To minimize the cascading effect, as per draft VAT Act, adjustment event occurs when the supply is cancelled, the consideration for supply is altered, the supplies are returned, the nature of the supply is fundamentally varied or altered, or VAT payable increases or decreases.

Adjustments increasing the amount payable include withheld amounts, bad debts, payments made outside banking channels, goods applied to private partners, VAT paid before registration, an increasing adjustment required on cancellation of registration, an increasing adjustment required where there is a change in the VAT rate, supplementary duty payable for the tax period, interest or a fine, penalty, fee or other sum imposed and payable.

Adjustments decreasing the amount payable include advance tax, adjustment relating to prepaid

telecommunication products, adjustment of withholding VAT, input tax credit amount, bad debts, adjustment on becoming registered, adjustment in relation to secondhand goods, adjustment in relation to indemnity payment under a policy of insurance, adjustment in relation to monetary price paid for a lottery, lucky draw, raffle or similar undertaking and refund of supplementary duty overpaid.

Supplementary duty

As per existing laws, luxury goods, non-essential and socially undesirable goods, as specified in the 3rd schedule, are subject to imposition of supplementary duty. The draft Act proposes supplementary duty to be imposed and payable on import of dutiable goods, supply of dutiable goods manufactured in Bangladesh and supply of dutiable services made in Bangladesh. There will be no supplementary duty on export and zero rated goods and services. Supplementary duty is payable only once.

The provision for supplementary duty on locally manufactured goods and services should be withdrawn unless these are luxurious in nature or socially undesirable.

Assessment

There is no provision of assessment of VAT under the existing law. As proposed in the draft Act the Commissioner may make an assessment of an amount payable by a person if he is not satisfied as to the accuracy of the information of the returns, if a person who fails to file a tax return, pays tax or has received a refund which he is not entitled to, or the person fails to pay the amount due, or a person

The Author is a Director(Finance & Company Secretary)Berger Paints Bangladesh Ltd.

has been paid a refund which he was not entitled to. An original assessment may be amended within four years. This could be a major source of inconvenience for tax payers if this provision is recklessly used by the authorities.

Duties of receivers/DirectorsThe draft Act defines the new concept of ‘Receiver’ as a person who, with respect to an asset in Bangladesh is:

- a liquidator of a company- a receiver appointed out of

court or by a court- a trustee for a bankrupt person- a mortgagee in possession- an executor of the estate of a

deceased person, or - any other person conducting

business on behalf of a person who is legally incapacitated.

A Receiver is required to notify the Commissioner in writing within 21 days, set aside the amounts notified by the Commissioner, and is liable to the extended amount set aside. He is personally liable to the extent of the said amount. The Directors of the Company are also jointly and severally liable depending on certain factors.

Security deposit

The draft Act has empowered the Commissioner to instruct taxpayers to make a security deposit to secure Government dues. This will create unwanted burden on working capital of taxpayers. There is also a risk of harassment of taxpayers.

Default surcharge

The draft Act introduces default surcharge @10% on taxpayers who fail to pay tax on due dates. On the top of 2% interest for non-payment of tax on the due date this provision appears unreasonable.

VAT practitioner

As per SRO 117-LAW-98/178- MUSHAK of 11 June 1998 issued under section 46 (2) of VAT Act 1991, even a qualified Chartered Accountant with long experience needs to pass a prescribed examination to get a VAT Consultant’s license whereas an officer of Customs, Excise and VAT department who served a minimum of 15 years in the position of revenue officer and above, is exempted from this. Section 178 of the draft Act contains the provision for license of VAT Consultants. The qualification requirements are expected to be prescribed in the

Rules. Business experience, knowledge of VAT laws and accounting are essential criteria for a person to plead VAT issues. In consideration of the academic background and professional experience, Chartered Accountants and similar professionals deserve VAT Consultant licenses without any further examination. In this context, it should be noted that Chartered Accountants are eligible to practice Income Tax under ITO 1984.

Thus the draft VAT Act 2011 is an advancement towards global standards. It will enhance Government revenues and relieve the taxpayers from long outstanding problems if implemented with some modifications in consultation with different Chambers, Associations and Professional Bodies.



Introduction

In the future, SMPs may no longer be able to rely solely on traditional accountancy-based services as their main source of revenue and growth, as demand for these services declines. In many countries, fewer small- and medium-sized entities (SMEs)—the typical clients of SMPs—are being audited, as thresholds are introduced or increased and governments move toward self-assessment of tax to reduce compliance costs for SMEs. In addition, technology is commoditizing many of the day-to-day compliance services traditionally supplied by SMPs, reducing the need for a professional accountant and driving down price.

The good news is SMEs are increasingly demanding a broader range of professional services, in particular, value-added business advisory services, which SMPs are well positioned to provide. As small businesses themselves, SMPs share similar aspirations, concerns, and attributes with their clients and are in an ideal position to become trusted advisors.

Why SMEs Look to SMPs for Business Advice

SMPs should leverage the following unique qualities when building their practices.

Competency: SMEs often lack a full range of managerial expertise in-house and outsource some managerial functions, such as CFO, to SMPs that have the required technical competencies and expertise.

Integrity and Trust: As members of a regulated profession with codes of ethics, accountants enjoy “institutional” trust. Their provision of compliance services wins them “competence” trust. This is a time-proven formula. Unfortunately, there can also be a reluctance to utilize advisory services until the expert has already provided a specific demonstration of their competency.Responsiveness/proximity: SMEs rate highly SMPs’ responsiveness to their demands. The proximity of SMPs to their SME clients is also important as many owner-managers appreciate personal attention from their advisers and value ease of access.

A Full Menu of Business Advisory Services

How to Build YourBusiness Advisory Practice:

Practice Management Tips for SMPsStuart Black

Paul Thompson


SMEs are demanding the following services, which SMPs can provide. These services can help ensure the efficiency, transparency, and sustainability of SMEs, improving their financial performance and boosting client satisfaction (and possibly demand!):

• Business development: strategic business planning, budgets and projections, sustainable business practice, virtual CFO, etc.

• Corporate advisory: business structuring, valuations, litigation support, forensic accounting, treasury, debt/equity funding, equipment finance, due diligence and business buy/sell, etc.

• Wealth creation and preservation: financial position evaluation, investment strategy development, asset allocation, estate/succession planning, pension planning, etc.

• Tax consulting: tax advice and/or representation on tax matters to revenue authorities, etc.

• Management accounting: budgeting, management reporting, cost accounting, benchmarking, product/customer profitability analysis, etc.

7 Things to Consider When Building a Business Advisory Practice

The following considerations can help SMPs succeed when building or laying the groundwork for a business advisory practice.

1. Modify your mission statement, vision, and plan: When expanding or changing the direction of your practice, set out a clear vision for the future and a roadmap for how to get there. You should also revisit your mission statement and adjust it as needed to reflect your practice’s modified or expanded service offerings, such as “We are dedicated to adding and sustaining value for families and their businesses.”

2. Educate and train your people: Providing high-quality business advisory services demands a different skills base than that to

SMES ARE

DEMANDING THE

FOLLOWING SERVICES,

WHICH SMPS CAN

PROVIDE. THESE

SERVICES CAN HELP

ENSURE THE

EFFICIENCY,

TRANSPARENCY, AND

SUSTAINABILITY OF

SMES, IMPROVING

THEIR FINANCIAL

PERFORMANCE AND

BOOSTING CLIENT

SATISFACTION (AND

POSSIBLY DEMAND!


provide traditional accountancy-based services. You can develop the capacity for business advisory by expanding both the technical and soft skills of existing staff. Some accountants can make the transition to business adviser through experience and self development, while others may need training or coaching.

3. Focus on a specific industry sector or specialization: Few SMPs will be able to gain and maintain the knowledge and skills necessary to be competent in all areas of business advisory. Therefore, SMPs should consider carving out a niche and participating in a referral network of SMPs that can provide the other services. A common model is to focus on a specific industry sector, such as hospitality, or to develop a specialization, such as sustainable business practices,

in order to differentiate your practice from the competition.

4. Develop relationships with other firms: Referral networks offer many potential advantages, such as helping your practice increase its client base. Participating in a network is an effective way to satisfy the increasing breadth of demands from SME clients and can help demonstrate to new clients that you have the capability of a larger practice. Referral networks can extend beyond accountancy to areas such as legal, HR, and IT.

5. Promote the practice to existing and new clients: Promoting and marketing your practice, and the value of your services, will be crucial to success. There are a number of reasons why SMEs choose SMPs to provide business advisory services (see above). SMPs

should leverage these qualities by promoting them to potential clients, who are often unaware that their professional accountant can provide these services. As accountants often have little or no expertise or experience in promotion or marketing, you may want to hire a marketing consultant or train an existing employee to do this. Your marketing expert can help you determine if you need to change the way your services are marketed and help you explore new channels, such as social media.

6. Change your business model: Business advisory services may require a different business model from that of traditional accountancy-based services. For example, business advisory services may be better suited to a business model based on selling intellectual capital rather than time. This lends itself to value pricing. To supplement this, you might wish to emulate the airline industry model, which divides their client base into premium and economy and offers a different value proposition to each—for the premium clients, a high-end service, at a correspondingly high price, and for the economy clients, a basic “no frills” service that frees up time to devote to the premium clients.

7. Embrace technology: Advances in technology present a significant opportunity for SMPs to operate more efficiently, reduce costs, and offer additional value-added services. Cloud computing, for example, allows SMPs to more actively engage with their SME clients on a day-to-day basis and offer services such as virtual CFO cost effectively.

Stuart Black is a Member,IFAC SMP CommitteeandPaul Thompson, Deputy Director,SME and SMP Affairs, IFAC


Putting Ideas into Action

To help you build a business advisory practice, we encourage you to download the IFAC Guide to Practice Management for Use by Small- and Medium-Sized Practices (PM Guide). This free guide comprises eight stand-alone modules on topics ranging from planning and building your firm to managing people and client relationships. It features case studies, checklists and forms, and an office procedures manual.

Additional Resources for SMPs

The following resources (all free of charge) are accessible via IFAC’s International Center for SMPs: www.ifac.org/SMP:

• Publications - PM Guide User Guide - The Role of SMPs in Providing Business Support to SMEs.

• Presentations and videos from 2011 IFAC SMP Forum in Istanbul, Turkey, especially Session 3, SMPs Evolving to Better Serve SMEs

• Quarterly SMP eNews

• Relevant Links (especially the categories ‘business advisory’ and ‘practice management’)

For translations of these and other resources, visit IFAC’s Translations Database.

Copyright © July 2011 by the International Federation of Accountants (IFAC). All rights reserved. Used with permission of IFAC. Contact [email protected] for permission to reproduce, store, or transmit this document.


The current stockmarket correction has caused a great deal of frustration and angst among market participants, especially retail investors, as evidenced by the regular street protests in Motijheel whenever we a so- called “market collapse” or 2% or more. A healthy capital market is important for the economy since the stock market should be one of the primary mechanisms by which savers or investors, those with surplus investable funds, provide financing to companies who have a capital deficit.

Amid all the calls for the resignation of all manner of government officials from the Finance Minister, to the SEC (Securities and Exchange Commission) to Chairman to the Governor of Bangladesh Bank, as well as demands that “stockmarket manipulators” be prosecuted, there is a presumption that the aforementioned players somehow both control, and are responsible for the market. The growing backlash among the massive wave of new retail investors (BO accounts have increased by almost 3 million in the last 4 years) also makes capital market reforms an increasingly important social and political issue.

But this is in stark contrast to the experience in other capital markets

around the world where stockmarket volatility, both rallies and selloffs, are accepted as a normal part of the market process.

Are Bangladesh stock prices really determined in a fundamentally different way? Indeed whenever I ask major market participants what they think will drive stock prices over the next 6-12 months, I am always struck by how few have a strong conviction about the primary drivers of the level of the market, or even individual stocks. In this article I wanted to both review some of the basic drivers of stock prices and then give some thoughts on what drove the 4 year bull run in stocks.

Clearly there are a myriad of different fundamental factors that drive the equilibrium level of the stockmarket as well as a number of shorter-term drivers. The level of individual stocks will also very with investor expectations on the prospects for individual companies earnings as well as those for their sector overall. A well functioning financial system should also see equity investors play an important role in terms of market discipline rewarding the management of those companies who deliver good earnings growth/strong dividends growth and punish those companies who misuse

d th ld h t k k t

Assessing the CurrentStockmarket Correction:The Case of Bangladesh

Ifty Islam


or ineffectively use capital. However, there have been growing signs in the bull market of recent years that the stock market has been more speculative.

A major factor, and one that is particularly relevant in analyzing the current scenario in Bangladesh, is monetary or central bank policy. The price of any good is determined, at its simplest level, by the interaction of demand and supply, In the case of stocks, a major factor in driving demand is the level of liquidity, which in turn is broadly determined by the central bank, which controls, via the banking system, the level of money supply. Higher liquidity growth/loose monetary policy should see stock prices rally, and tighter policy a decline, all other things being equal. Another way of looking at the fundamental fair value of an individual stock is to see it as the net present valu7e of the future stream of earnings of the company – an easier way to understand this is that you have a claim on cash generated by the company as a shareholder which is typically paid out in the form of dividends. So monetary policy

affects stocks in a second way, namely at higher interest rates the net present value of future earnings is lower. Stocks are clearly affected by the strength of the economy, but the impact is often indirect insofar as stronger GDP growth tends to be associated with higher corporate earnings and hence stock prices. On the other hand, if growth is too strong and causes inflation, then the central bank may need to tighten monetary policy (raise rates/squeeze liquidity growth), which is bad for the market. So in general growth is a good thing but not too much and not too little to paraphrase the nursery rhyme. Another factor that can drive demand is structural effects by the arrival of new market participants. In the recent history of the DGEN, as we will highlight later in this article, the greater presence of banks in the capital markets as well as the rapid growth of retail investors were structural increases in the demand for stocks and hence pushed prices higher. In other markets, that rapid increase in foreign investor participation can have a similar affect. On the supply side, the lack of supply can also boost prices and this has been an important factor in Bangladesh’s case.

A MAJOR

FACTOR, AND ONE

THAT IS

PARTICULARLY

RELEVANT IN

ANALYZING THE

CURRENT SCENARIO

IN BANGLADESH, IS

MONETARY OR

CENTRAL BANK

POLICY. THE PRICE OF

ANY GOOD IS

DETERMINED, AT ITS

SIMPLEST LEVEL, BY

THE INTERACTION OF

DEMAND AND SUPPLY,

IN THE CASE OF

STOCKS, A MAJOR

FACTOR IN DRIVING

DEMAND IS THE LEVEL

OF LIQUIDITY, WHICH

IN TURN IS BROADLY

DETERMINED BY THE

CENTRAL BANK,

WHICH CONTROLS, VIA

THE BANKING

SYSTEM, THE LEVEL OF

MONEY SUPPLY.


Lets turn now to the anatomy of the recent bull market and the current correction. We will then consider some necessary market reforms.

What Drove the Bull Market in Stocks?

The rally was primarily driven by four major factors:

1) Excess Liquidity Growth2) Structural Increase in Retail

Investors3) Lack of Supply/IPOs4) Excessive Investment by

Commercial Banks in the Capital Markets

5) Microcap, Low Freefloat Stocks More Vulnerable to Extreme Price Volatility

6) Regulatory Inverventions Increasing Moral Hazard

Excess Liquidity Growth

With broad money (M2) expanding by more than 20% last fiscal year and once again this year, fueled by inflow of workers’ remittances, certainly there is more than enough liquidity (like surging fold water) to shrug off the limited efforts by the SEC.

Obviously when there is a lot of liquidity in the system, and money

being fungible, there is no way to prevent people from borrowing on one account (for the officially stated purpose of trading, housing, agriculture and other uses) and investing in the stock market. As surging flood water cannot be contained by putting a small/weak dam downstream and water simple bypasses or overwhelms/washes away the barrier, money keep pouring into the stock market ignoring the SEC signals lured by quick capital gains.

Growth in Broad Money

In addition to supporting investment through loose money supply, Bangladesh Bank had maintained a policy of virtually pegging the taka against the dollar to support exports. As the dollar has depreciated in the past couple of years, taka has seen appreciation pressures. According to one analyst, had it not been for the Bank’s intervention, taka would have appreciated to 60 per dollar in 2009. The policy of keeping the taka undervalued and not resorting to sterilization of the excess liquidity through Open Market Operations has contributed to the excess growth in money supply. A large proportion of that extra money found its way to the stock market. With no commensurate

rise in the supply for shares, increased turnover meant rapidly increased share prices.

The budgetary provision in 2009 to allow whitening of undisclosed money into the stock market also played an important role in flooding the market with liquidity.

Structural Increase in Retail Investors

According to Centre for Policy Dialogue’s (CPD) analysis, the total number of beneficiary owners’ (BO) account holders was 3.21 million on 20 December 2010. This compares with less than 500,000 less than 3 years ago. The opening of brokerage houses at the district level (238 brokerage houses of DSE opened 590 branches at 32 districts), arranging a countrywide ‘share mela (fair)’ and introducing interest-based trading operation, easy access to market information, were some of the factors identified by the CPD that accelerated the flow of investors.

Retail investors by nature have a very limited understanding of fundamentals for stock pricing and fair values. For example, stock splits (3.g. BDT 100 face value to BDT 10 face value) have been an area of significant confusion with perceived value being created out of thin air. Theoretically a stock split, all other factors being equal should only increase the number of shares, and have no impact on the aggregate market capitalization of the company. So if a share is trading at BDT 400 and there is a 10:1 stock split, then the shares port split should trade at BDT 40, with the investor having 10 shares rather than 1. However, from the date of a company announcing its stock split, it is often the case that the company’s share price will start


to increase with investors thinking that they will achieve better returns as they are holding more shares and also that the share value is likely to increase more from a lower base, with no change in fundamentals. As a journalist recently wrote’ …it confuses investors and leads them to believe that they are getting a bargain at the new post-split price, it is really not the issuing company’s fault any more than it is a cereal company’s if people grumble that the Tk 100 box contains less cereal than the Tk 500 one.

Lack of Supply

Some estimates have suggested that more than 80% of corporate Bangladesh has yet to be listed. Moreover, even for those companies that are listed, many have a relatively limited free float. As a result, excess liquidity finding itself into to the stock market has had an exaggerated impact on stimulating asset prices and exacerbating the bubble due to a supply/demand imbalance. In 2010, there were only 6 IPOS and two direct listings (see charts below). There was also limited issuance in 2009. Expectations for additional IPOs from State-Owned Companies failed to materialize as did further listings from other Telecoms companies.The data outlined in the charts below also summarizes the P/E ratios of the issues. The IPOs average P/E ratio of 34.9x is slightly higher than the market but the aggregate issuance size of IPOs of BDT 12.7bn is too small to support the charge from some quarters that there was massive withdrawal of capital by sophisticated corporate from the market at inflated levels from unsophisticated retail investors. The direct listings were at a much higher P/E level of 91.4x but again the aggregate amount withdrawn at

BDT 17.8 bn is still modest relative to the size of the market.

We would make two further observations on the analysis of supply and “taking money out of the market at inflated levels”. Firstly, if you believe that prices have been set on the basis of transparent and genuine accounts then as the expression goes “caveat emptor” or “let the buyer beware”. If buyers or investors want to buy a stock at an inflated P/E because they think it was fair value at the time or, as is more likely in the 2010 bull market, they believed it would go up further in the short run, then that is a market view by the investor and if they are wrong they have to live with that. One caveat would be where there is a

perception that the SEC has “validated” or justified the fundamental value of an IPO. We think this is dangerous practice and hence favor market based systems of fair price discovery such as book building rather than fixed price.

A second observation is that if you believe that excess demand in the stock market caused the bubble because of a lack of supply then accusations of companies “taking money out of the market” ring hollow and somewhat hypocritical or inconsistent. More supply is precisely important because it takes money out of the market. Ultimately the stock market is there to help companies raise investment capital.


Excessive Investment by Commercial Banks and other Financial Institutions in the Capital Market

• Direct investment in the stock market by financial institutions has increased more than 8 fold since 2006 to about TK 45 billion in 2009. The level of investment must have increased further in 2010.

• About Tk 40 billion of that was attributable to commercial banks, primarily private commercial banks.

• Commercial Banks earned about TK 11.5 billion from stock market investment in 2009.

Excessive Regulatory Interventions/Moral Hazard

We have seen an extraordinary period of stock price volatility with excessive regulatory interventions by the authorities. The next two charts illustrate the frequency and indeed flip flops in interventions in Q3 and Q4 2010.

On December 8 DGEN suffered the third highest single-day plunge since 20001 losing 185.53 points

or 2.12 percent. Eleven days later on December 19, DSE suffered its biggest crash, of course up until then, as the index nosedived by 551 points or 6.72 percent at the close of a four-hour trading session. The raging bull was finally tamed on back-to-back recor5d plunges on January 9 and 10. The upheaval continued as the DGEN, after the nosedives, took a high jump rising more than 15 percent which was the highest one-day spike ever –a rebounding record.

DSE Performance from December 5, 2010

Bangladesh bank initiated the withdrawal of illegally invested industrial loans from the market by December 31, 2010 and raised the Cash Reserve Requirement (CRR) and statutory liquidity requirement (SLR) both to 6 percent and 19 percent respectively. The central bank circular issued on November 28, 2010 asked banks to adjust all loans, amounting TK 10 million and above, that have been diverted to areas other than the purposes mentioned in the loan applications by December 15.

However, as the market sold off in January, the SEC and Bangladesh Bank responded with a number of market supportive measures. The

securities regulator increased the margin loan ratio from 1:1 to 1:1.5 and then to 1:2. SEC also restored normal trading of Grameenphone (GP) and Marico, suspended the Net Asset Value (NAV) based execution of order relating to increased margin deposit by member5s of the bourses.

Excessive regulatory interventions also distorts price movements in the market place and reduces the inventive for investors to buy stocks on the basis of fundamentals since price trends might be unduly affected by unpredictable official interventions.

One might also argue that repeated market support interventions, to the extent that they are ultimately likely to fail, also risks fuelling greater social unrest to the extent that unsophisticated retail investors believe that the government has broken some form of implicit “contract” to prevent excessive market declines. In the recent market turmoil we have seen repeated occasions where retail investors have expressed surprise that the stock prices with good fundamentals can actually decline.

Recommended Stock Market Reforms

Greater Resources for the SEC in Market Monitoring/More Fundamental Research: An important role for stock market regulators is to ensure that there is transparency and a level playing field in the market, and that either companies or large investors do not trade on inside information. In increasingly complex markets, this requires substantial investment in market-monitoring (surveillance) technology. Additional resource should be allocated to analyze CDBL records more thoroughly to provide more confirmation and evidence of price manipulation.

The Author is a Managing Partner,AT Capital


The SEC needs to have a larger budget that can increase its ability to recruit, retain and pay market competitive salaries for market competitive salaries for professionals with necessary expertise and insight into the capital markets. The SEC also needs to ensure more effective utilizations of resources from donor agencies to develop better market monitoring capabilities and bring in more global best practices from other regulators around the world.

There is need for much greater fundamental research on financial market developments and regulatory aspects. Bangladesh also needs to develop a framework to avoid analysts’ conflicts of interest. A lack of fundamental analysis is a recipe for a speculative capital market that is news-driven and an inefficient allocator of capital to the corporate sector. But one needs

to recognize the need for effective regulations to avoid market manipulation and insider trading.

Transparent Balance Sheets: They also need to ensure that companies that raise capital in the market for the first time in an Initial Public Offering (IPO) do so on the basis of honest and accurate information about the state of the company’s finances/balance sheet as well as the current and future prospects for the basis. A key role for market regulators should also be to ensure that companies ongoing reporting of their financial results is honest.

We fully support the initiative of the Government to establish the Public Company Accounting Oversight Board, to provide independent oversight of public accounting firms providing audit services which would result in a higher degree of accountability to the audit firms.

Conclusions

Looking ahead to the prospects for the stockmarket, the one major positive for stocks is that corporate earnings growth among both banks and the non-financial sector remain positive. Bank earnings have actually been boosted both by the removal of the interest rate cap as well as the surge in trade finance revenues as both export and import volumes have jumped sharply in the past 12 months. Both there are still major macro risks for the economy including the prospects for higher interest rates, a liquidity squeeze, stubbornly high inflation and the move into a current account deficit. In our view, the most catalyst for a sustained recovery in the stockmarket will come about when money supply growth has slowed, inflation has stabilized and the monetary policy tightening can come to an end. After that the positive company fundamentals should underpin a return to a longer run bull market.


The stock market is one of the most important and significant sources for raising money in the form of capital by all kinds of companies in trading, manufacturing financial etc., sectors. This allows businesses to publicly trade their shares or raise additional capital for expansion and development by selling shares of ownership of the company in the stock market. The importance of a strong, healthy and stable stock market cannot be exaggerated.

History tells us that the price of shares, securities, bonds, mutual funds etc., is an important part of the dynamics of economic activity and acts as an indicator to development and economic growth. In fact, the stock market is often considered to be the primary indicator of a country's economic growth and development, strength and weakness.

Where the stock market is on the rise, it is considered to be an up-and-coming economy and the investors especially the industrialists, businessmen, bankers and business professionals feel confident about their investment and get inspired and encouraged for further development and expansion.

Stock market is the heart of investment

and is considered the most important market for trading shares, securities, bonds and mutual funds, locally and internationally and is given top priority by the business communities, the people in general and the government of most of the countries. Up-and-down of prices of shares, securities, bonds, etc., are common phenomenon in the capital market at national and international levels. Crashing of share market or capital market is happening, off and on, in the developed, developing, least developed or underdeveloped countries of the world.

The share index of Bangladesh stock market has been dipping down since December 2010. On December 20, 2010, index lost about 600 points in one day and thanks to Security Exchange Commission (SEC) for introduction of "circuit breaker" not on time but at least of late. Still the capital market is in a volatile and fragile condition due to severe problems faced by the market. The reasons and problems behind the downtrend of share index have been identified by the professionals, the regulator (SEC), central bank and the concerned government departments.

"Lack of confidence among the general investors, absence of institutional investors and liquidity squeeze in recent days

Unstable stock marketneeds fast track action plan

Muhammad Jalal Hussain


disappointed the investors, which contributed to the continued market fall," said Sannamat, a stock market expert.

The problems that are identified by all concerned and that lead the stock market to the downtrend are summarised as: (a) lack of confidence of general and institutional investors (b) liquidity crunch faced by the investors especially the banks and financial institutions (c) lack of interest of institutional buyers such as banks, lease companies and insurance companies (d) higher deposit rates in banks and other financial institutions (e) government borrowings from the commercial banks.

The representatives of some Bangladesh trade bodies met the governor of Bangladesh Bank (the central bank) recently and expressed their views and ideas about the unpleasant stock market situation. They also put forward some proposals to the governor for consideration and implementation. It appears that all the concerned authorities namely, the regulator, the central bank and the government department (ministry

of finance) are well aware of the problems faced by the stock market but the fact is that nobody comes up with concrete solutions.

We, the general people, do understand that "where there is a problem, there must be a solution." The Bangladesh Bank governor appreciated and took note of the proposals presented by the representatives of trade bodies. It raises question among the minds of the general investors as to why the governor of the central bank waited for 10 months to take action when the stock market was dipping down. The proposals, suggestions, advice, guidance, rules, regulations etc., should have come from the regulatory bodies. Why were they not playing an active and dynamic role? It appears that the policymakers and the planners are far from forming a coherent strategy to help stabilise the stock market.

"Banks and other financial institutions should come forward and invest in shares in the stock market and they will be gainer," so said Dr Mirza Azizul Islam, former Chairman of SEC and former adviser to the government of Bangladesh. Actually, banks and financial institutions can play an important and active role in the volatile stock market. The central bank acts as

THE SHARE

INDEX OF

BANGLADESH STOCK

MARKET HAS BEEN

DIPPING DOWN SINCE

DECEMBER 2010. ON

DECEMBER 20, 2010,

INDEX LOST ABOUT

600 POINTS IN ONE

DAY AND THANKS TO

SECURITY EXCHANGE

COMMISSION (SEC)

FOR INTRODUCTION OF

"CIRCUIT BREAKER"

NOT ON TIME BUT AT

LEAST OF LATE. STILL

THE CAPITAL MARKET

IS IN A VOLATILE AND

FRAGILE CONDITION

DUE TO SEVERE

PROBLEMS FACED BY

THE MARKET.


the banker to the banks and also banker to the government of any country and it knows the liquidity and other financial positions of commercial banks; it knows the problems faced by the commercial banks better than anyone else. It is logically and genuinely expected that the central bank should come forward with rules and guidance to improve the liquidity situation faced by the banks and other financial institutions.

The central banks of most of the developed and developing countries play an important, strong and significant role in stabilising the stock market, in solving the liquidity crunches of commercial banks by introducing policy, guidance and positive fast steps to bring the situation of stock market to normalcy. Here we quote the CNN Money "WPXI 2011-10-06: NEW YORK (CNNMoney) -- US stocks rallied for a third straight day Thursday, as investors turned optimistic, following the European Central Bank's latest policy measures aimed at boosting liquidity in the European banking system. The Dow Jones industrial average jumped 183 points, or 1.7

per cent, the S&P 500 added 21 points, or 1.8 per cent, and the tech-heavy Nasdaq composite rose 46 points, or 1.9 per cent. Financial stocks led the gains, with Bank of America and JPMorgan Chase among the Dow's strongest performers. Shares of Morgan Stanley and Citigroup also popped." The central bank of a country is run by professionals and eminent economists and it should come out with the policy, guidelines in consultation with the government agencies to tackle the situation.

From the meetings, discussion, analysis and reviews by the business experts, professionals, regulator, stakeholders, Dhaka Stock Exchange (DSE) and Chittagong Stock Exchange (CSE), the problems for the weak, volatile and fragile stock market in Bangladesh have been identified and at the same time the solutions have also been reached. The lectures, speeches, theories and meetings of the responsible authorities did not achieve any fruitful results so far in the country's feeble stock market.

Now the time has come to take immediate and uninterrupted steps and concrete actions by the concerned authorities namely, Ministry of Finance, Securities and Exchange Commission (SEC), Bangladesh Bank, commercial banks, financial institutions and the investors. The action plans, which we strongly believe will bring fruitful results, are : (a) introduce some stimulus packages to encourage institutional investors to invest in stock market (b) introduce some "loan fund" for use by the banks exclusive for the purchase of shares (c) relax the restrictions imposed on the investment in shares by the banks/merchant


The Author is a Fellow Member of ICAB

banks (d) reduce government borrowings from the commercial banks (e) reduce deposit rates with the banks and financial institutions and also reduce lending rates of banks and other financial institutions (f) improve the liquidity positions of commercial banks by reducing the reserve ratios with Bangladesh Bank. Deposit rates (12 per cent to 14 per cent) and lending rates (14 per cent to 18 per cent) are very high in comparison with the rates of developed and developing countries around the world and need to be reduced for the sake of investment and industrial growth.

It is worth mentioning here that the central bank has various stimulus and incentive plans to boost up the trade and business of certain areas; for example, to boost export trade, there is cash incentive plan, which is enhanced recently from 5.0 per cent of export sales to 10 per cent of export sales, there is Export Development Fund (EDF) for exporters, Small and Medium Enterprise (SME) Loan Fund, Information Technology (IT) Loan Fund and so on and all these are government approved funds. Considering the gravity and the most aggravated condition of the present stock market, the government can introduce some stimulus packages, similar loan funds prescribing the modus operandi and rules and regulations for the exclusive use in the stock market.

We are confident that all such measures will act as an antidote,

remedy and will bring a radical change in the stock market and thus help accelerate the economic growth. If government introduces some loan funds through the central bank with easy terms and conditions to be used in the stock markets by the banks and financial institutions, this will redress the liquidity crisis and there will be more inflow of fund in the stock market. When the market takes an upward trend, the slumped confidence of the investors will get restored.

A healthy, strong and stable stock market is highly desirable. The quintessence from economic and political points of view is that continuous falling of share prices, unstable and shaky stock market, tarnishes the image, goodwill, creditability, reputation and

popularity of the government in any country. With the dipping down of share prices, the hard-earned popularity of the government of any country is also depleted and diminished slowly but surely. Tangible and fast-track action plans deserve top priority and should be put in place in the top most action plan agenda of the government, the regulator, the central bank, commercial banks and financial institutions, stock exchanges, the institutional and general investors.


The two words in the topic are “Empowerment and Excellence”. This theme of “Empowering Excellence”, should actually be the vision of our profession. The Institute desires this from each of its members.

Our institute deems to ensure empowerment of excellence through Brilliance of Knowledge, Independence of Opinion and Integrity while exercising professional judgments.

Students are the assets for the Institute as well as the country. Big question which arise in their mind is about their future prospects. After qualifying as a CA, they should be made realize their potential capability to inspire self-confidence and a sense of elevation, in keeping with the profession’s exacting standards of excellence and to understand the aspect which would in turn help them to create opportunity not only for themselves but for others as well. Because every person is unique in himself. The only requirement is to trace out the best in himself. These traits act as a foundation for a flourishing professional career. Nothing can bar a Chartered Accountant with these qualities from attaining “Excellence in his Professional Career".

The theory behind Excellence, Independence and Integrity is vast. The fact that really matters to a C.A is what is excellence? What actually independence signifies? And how integrity can be attained?

Excellence of Knowledge

An aspiring student registers himself with the Institute, goes through three and a half years of articleship, writes the exams and passes the exams to qualify as a Chartered Accountant. Many of the students remain focused on completing the course rather than acquiring good subject knowledge and analytical skills. They feel secure once they complete their course, however there can be exceptions. A student should not underestimate himself and should focus on acquiring real knowledge and in depth analysis of the subject he studies. He should have the quest to know everything about the subject and understand the practical issues involved in each subject.

The profession of CA opens up avenues for lucrative earning. However, it also entails accepting the onus of huge social responsibility. Only when a young professional is competent enough to deal with even the complicated issues, he can

Empowering ExcellenceRubaba Ferdous


attract big clients in profession at an early age, can get recognition at an early age, and the subject knowledge and belief gives him the required confidence to start his own practice and build his practice so quickly.

As quoted in IFAC code of Ethics, “A professional accountant has a continuing duty to maintain professional knowledge and skill at the level required to ensure that a client or employer receives competent professional service based on current developments in practice, legislations and techniques. A professional accountant should act diligently and in accordance with applicable technical and professional standards when providing professional services.”

Excellence of knowledge plays an important role in one's professional

career. The reason for this is that the public has various perceptions about a Chartered Accountant. In accordance with the public thoughts, a professional accountant is meant to be the following:

Proficient in the field of Accountancy

A Financial specialist An expert Economist Adequately well versed to answer

logical questions A perfect advisor A dependable Income- Tax expert Person with special ability for

reasoning A model Arbitrator A trustworthy representative Skilled enough in statutory laws An expert Analyzer

And the list goes on….,

In order to meet up such huge expectations, it becomes the

A

PROFESSIONAL

ACCOUNTANT HAS A

CONTINUING DUTY TO

MAINTAIN

PROFESSIONAL

KNOWLEDGE AND

SKILL AT THE LEVEL

REQUIRED TO ENSURE

THAT A CLIENT OR

EMPLOYER RECEIVES

COMPETENT

PROFESSIONAL

SERVICE BASED ON

CURRENT

DEVELOPMENTS IN

PRACTICE,

LEGISLATIONS AND

TECHNIQUES. A

PROFESSIONAL

ACCOUNTANT SHOULD

ACT DILIGENTLY AND

IN ACCORDANCE WITH

APPLICABLE

TECHNICAL AND

PROFESSIONAL

STANDARDS WHEN

PROVIDING

PROFESSIONAL

SERVICES.

The Author is a articled Student,Knowledge Level, Ahmed Khan & Co.,Chartered Accountants

responsibility on a C.A to acquire firm hold on all the subjects relevant to his profession so that he can act efficiently and diligently with professional competence and due care while providing professional services. In other words, he should gain excellence of knowledge. Only the person who satisfies the requirements can excel in his professional career.

Independence of Opinion

In accordance with IFAC Code of Ethics, “A professional accountant should not allow bias, conflict of interest or undue influence of others to override professional or business judgments”.The opinion or report of a professional accountant is likely to be unanimously accepted devoid of any reasonable doubt. Besides, there is sort of social responsibility upon the actions of the professional accountant. Therefore, it is very essential that a Professional Accountant is completely independent in expressing his opinion on certain matters of fact which is usually the financial position of an entity, the correctness of the books of accounts or reporting certain statements (financial or otherwise) are true and fair or not.

The functions of a professional accountant can be severely affected under any bias or undue influential conditions. Hence, independence of Professional Accountant has been held as a very vital factor in the course of his profession. Therefore it can be concluded that

No Independence - No proper opinion

No proper opinion - No proper profession

No proper profession - No question of Excellence in profession

Integrity in Discharging Duties

As per IFAC Code of Ethics, “A professional accountant should be straightforward and honest in all professional and business relationships”.

The criterion for the integrity for the auditor is highlighted in this quotation. The personal qualities such as patience, integrity, judgment, reliability, tact, caution, firmness, good temper and clear headedness all form tools for a smooth professional career. A professional accountant behaves with integrity when he or she is:

Straightforward Honest Fair Truthful Unbiased Free from conflict of interest.

According to Lord Justice Lindley, in the famous London and General Bank case, “An auditor must be honest that is, he must not certify what he does not believe to be true and must take reasonable care and skill before he believes that what he certifies is true".

Independence and Integrity go hand in hand and one is backed by another in reaching the required summit.

Era of Globalization

In this era of Globalization, the competition is rigid. It takes a lot of courage to succeed in one's profession. A professional Accountant needs to be more versatile and prove to be familiar with any system of accounting in order to empower excellence. In the earlier era, a chartered accountant used the term IT for only one abbreviation and that was

Income-tax. But today the first thing, which comes to mind when we see 'IT', is Information Technology. The emergence of Information Technology has given a new meaning to an accountant's job. As the world is growing, the responsibilities are growing. Earlier an accountant was required to write the accounts. Now he is required to check the accounts. Information Technology initially brought about the changes in the methods of recording transactions, which gave rise to computer audit and information system audit. Every professional must and should have the knowledge of computers.

The discussion covered in this paper on the fields of service of a Chartered Accountant is only a small percentage of the total scope of empowering professional excellence required from him. To conclude, it can be said that the scope of a professional career of a C.A is very vast. But the excellence in professional career lies only in the individual hands of the professional. It is only up to them as to how well they adopt the Institute’s guidelines and carry the profession with Brilliance, Independence and Integrity to ensure excellence. It is hoped that with these qualities the vision of the profession will definitely come true.



Corrigendum


ICAB NewsThe Bangladesh AccountantThe Bangladesh AccountantQuarterly Journal of the Institute of Chartered Accountants of Bangladesh

he Institute of Chartered of Chartered Accountants of Bangladesh (ICAB) organized a CPD Seminar on Compliance with Corporate Gover-nance Reporting by Listed Companies in Bangladesh held on Saturday, 02 July 2011 at 05-00 p.m. at ICAB Auditorium, C A Bhaban, 100 Kazi Nazrul Islam Avenue, Kawran Bazar, Dhaka-1215.

Mr. Mahbubur Rahman, President, International Chamber of Commerce Bangladesh graced the occasion as Chief Guest.

Mr. Arif Khan, FCMA, Member, Securities and Exchange Commission (SEC) was present as Special Guest.

Mr. Mamun Rashid, Professor & Director BRAC Business School, Dhaka and Mr. Md. Akter Hossain Sannamat FCA, Chief Consultant, Aziz Halim Chaudhury & Co., Chartered Accoun-tants were present as Panel Speakers.

Mr. ABM Azizuddin FCA, Past President-ICAB conducted the session as Session Chairman.

Mr. Md. Salim Uddin FCA, Professor, Department of Accounting & Informa-

tion System, University of Chittagong presented the keynote paper.

Ms. Parveen Mahmud FCA, President, ICAB said that as a regulatory body of accounting professionals in Bangla-desh, ICAB has demonstrated its inherent strength and strong willing-ness to improve its professional knowledge to come up to the world standard. This will necessitate intensive training and higher level of profes-sional expertise. Members of ICAB are equipping themselves with the knowledge and skill required to uphold the prestige of ICAB as sound, capable and transparent body, she added.

Mr. Md. Salim Uddin, FCA focused on the impact of corporate governance reporting on listed companies, with a strong emphasis on shareholders' welfare; this aspect is particularly present in contemporary public debates and developments in regula-tory policy.

Mr. Mamun Rashid said, in emerging markets, good corporate governance serves a number of public policy objectives. It reduces vulnerability of the financial crises, reinforces property

rights, reduces transaction cost and cost of capital and leads to capital market development. Corporate governance concerns the relationship among the management, board of directors, controlling shareholders, minority shareholders and other stakeholders

Mr. Akter Hossain Sannamat, FCA said that basically Governance begins at home inside the Board Room among the Directors. The mindset of the Directors is the biggest challenge for establishing a good Corporate Gover-nance system in corporate houses in Bangladesh. “The Board is no doubt internally responsible for leadership and guidance of the companies but they are also externally responsible to the share holders as well as the wide stakeholders.

Mr. Arif Khan, FCMA and Member, SEC said ensuring good corporate governance in the public listed companies is one of the highest priorities of SEC. About ensuring good governance,

Chief Guest Mr. Mahbubur Rahman, said that no economically sound activity would be possible without accountancy. Good Governance cannot be ensured in listed companies in the country without transparency, independence and cooperation. “When there is cooperation, there can be transparency. Without cooperation and transparency, corruption cannot be eliminated or diminished,” he said. Beyond the information it provides on the financial position and profitability of operations, it is the foundation of the countries’ fiscal systems and it plays a key role in corporate governance.

T

Transparency and Accountability essential ingredients for Good GovernanceSpeakers at the Seminar


ICAB News The Bangladesh AccountantThe Bangladesh AccountantQuarterly Journal of the Institute of Chartered Accountants of Bangladesh

he Institute of Chartered Accoun-tants of Bangladesh (ICAB) organized a CPD Seminar on “Role of Professional Accountants in Business” on Saturday, 30 July 2011 at 05-00 p.m. at ICAB Auditorium, C A Bhaban, 100 KaziNazrul Islam Avenue, Kawran Bazar, Dhaka-1215.

Mr. Thevakumar Kandiah, Country Director, Asian Development Bank (ADB) graced the occasion as Chief Guest.

Mr. Ahmed Raihan Shamsi FCA, Deputy CEO & Chief Financial Officer, Grameenphone Ltd and Ms. Shama Rukh Alam FCA, Group Finance Director, Duncan Brothers (Bangladesh) Ltd. were the Panel Speakers.

Mr. Yussuf Abdullah Harun FCA, Chairman, Incontrade Ltd., & Former President, FBCCI conducted the Seminar as Session Chairman.

Mr. Md. Humayun Kabir FCA,Council Member & Past President, ICAB and Chairman, PAIB Committee of Council-ICA Band Chief Executive, BEXIMCO Jute Division presented the keynote paper.

Chief Guest Mr. Thevakumar Kandiah said that the tasks of the accountant include holding, centralizing, opening, stopping, monitoring, rectifying and consolidating the accounts of compa-nies and organizations. Demonstrating the regularity and fairness of the balance sheets and income statements, organizing accounts and analyzing the situation of companies in the economic, legal, financial and social aspects are key ingredients in this process.

These tasks must be performed according to a number of rules stipulated in standard accounting principles. The general standards are the basic rules, and they relate to performance, work and reporting.

The efforts of ICAB in strengthening the accounting profession in Bangladesh are really appreciable. He expressed his hope that the members of ICAB would equip themselves with the knowledge and skill required to uphold the prestige of ICAB as sound, capable and transparent body.

Ms. Parveen Mahmud FCA, President, ICAB delivered the welcome address. She said almost two thirds of our

members are working in different capacities in business and contributing to the economy at home and abroad “Now a days professional leadership development strategy needs to compose not only the accountants in practice but also those in business to further the profession and its people as a whole. As today’s accountants are almost two thirds of our membership , so this year ICAB introduced a non-standing committee called Professional Accountants In Business (PAIB)” she informed the audience.

Panel Speaker Mr. Ahmed Raihan Shamsi FCA said the traditional role of professional accountants has been changed. Now they are expected to be business managers. Mr. Shamsi thought that the attitude should be a quality for the professional accountants, which is very important for modern business with other qualities like standards, ethics and competence.

Another Panel Speaker Ms. Shama Rukh Alam FCA said that the role of professional accountants in businesses is full of possibilities, challenges and excitements. The main thing is that the public expects the accountants to lead in an ethical fashion. Professional accountants have to be perceived to be transparent and to do the right thing all time.

In the theme paper Mr. Humayun Kabir described that although the role of Chartered Accountants in corporate governance is generally understood in the capacity as an auditor, according to me, Chartered Accountant can play a significant role in practicing good corporate governance.

T

Professional accountants can lead the way in running businesses profitably, efficiently and ethicallySpeakers at a CPD Seminar



resident ICAB, Ms Parveen Mahmud had a meeting on August 23, 2011 with Ms Catherine Martin, Senior Private Sector & Market Development Adviser, Ms. Shahnila Azher, Private Sector Adviser, DFID. The objective of the meeting was to explore avenues of collaboration for financial learning project for women entrepreneurs, SMEs , financial literacy program with DFID and Institute of Chartered Accountants of Bangladesh (ICAB). The meeting also discussed scope to strengthen ICAB capacity and services in the private, public, social sector and financial reporting for good governance. They also showed their interest to introduce English Business Communication course for students and members. ICAB already submitted a draft concept note on Bridging between SME / SMP Strengthen Financial Reporting and Management services of SMEs and Capacity Building of Small and Medium Practitioners (SMP) of ICAB for pro poor growth and employment generation in SME Sector in Bangladesh. Similar kind of draft was also submitted to Ministry of Industries to collaborate with SME Foundation.

P

ICAB President meets senior officials of DFID

resident ICAB, Ms. Parveen Mahmud had a meeting with Mr Md Ghulam Hussain, Secretary, Ministry of Commerce on August 25, 2011. Mr Shawkat Ali Waresi, Additional Secretary was also there. They updated the Secretary on the Progress with Post Twinning arrangement with ICAEW and also that World Bank is willing for funding the project. Mr Shahadat Hossain, FCA, Vice President ICAB, Ms Suraiya Zannath Khan, FCA, Senior Financial Management Specialist, South Asia Region and The World Bank were also present at the meeting.

P

ICAB President holds Meeting with Ministry of Commerce (MOC)

he May-June 2011 ICAB Professional Examinations saw a record number of 84 candidates who have cleared their Final Exams and are now eligible for membership of ICAB. Results of these examinations were published recently.The members of the Editorial Board congratulate the successful candidates and wish them all success in their future endeavours.

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Record Number of Candidates pass final CA Exams

six member ICAB team led by Ms. Parveen Mahmud FCA, President, ICAB attended meeting with Governor, Bangla-desh Bank and his team on September 18, 2011. ICAB team discussed about ICABs responsibilities by Adoption of IFRSs/ IASs. They said that we have to overcome challenges for effective guidelines for implementing the adopted BAS/BFRS. There are some outstanding issues on Financial Instruments: related to Banking Sector and other issues related to Bank Branch Audit, which needs to be resolved with Bangladesh Bank for clarity and strong financial discipline in the Banking sector. Governor proposed to form a committee with BB and ICAB members, to look into the issues under an agreed TOR with timeline.

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ICAB team meets with BB Governor



he Institute of Chartered Accountants of Bangladesh (ICAB) recently organized IFRS Training Course for the trainers and the trainees. In this connection, an Inaugural Ceremony was held on Friday, 01 July 2011 at 5-00 p.m. at ICAB Auditorium, C A Bhaban, 100 Kazi Nazrul Islam Avenue, Kawran Bazar, Dhaka-1215.

Dr. Atiur Rahman, Governor, Bangladesh Bank graced the occasion as Chief Guest.

Mr. Jamal Uddin Ahmad FCA, Past President, ICAB and Former Deputy Prime Minister, GoB acted as the Session Chairman in the ceremony.Ms. Parveen Mahmud FCA, President, ICAB said that as a statutory self regulatory body of accounting professionals in Bangladesh, ICAB bears the big responsibility of upgrading our local accounting and financial reporting standards and practices as early as feasible to those required by International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS). The President highlighted ICAB’s progress in ongoing and new initiatives in this direction; including the ICAB-ICAEW twinning project, issuance of a new set of financial reporting standards for SMEs in Bangladesh based on IFRS, Quality Assurance Visits under the Quality Assurance System, and the round of

IFRS training courses for accounting professionals in financial and non-financial corporate now being kicked off.

Chief Guest, Dr. Atiur Rahman, Governor, Bangladesh Bank said that we are all aware that investment and output activities in Bangladesh have picked up sharply in FY11, with our economy stepping on to higher growth trajectory, on track to reach the middle income country group threshold (GNI of USD 996 per capita) by 2015. Sustaining this growth momentum needs attracting substantial new foreign equity and debt inflows in our investment projects. For investment projects in Bangladesh to attract joint venture partners and lenders from abroad, or for our corporate sector to attract equity subscriptions from abroad, their financial statements and disclosures will need to earn credence and confidence of foreign lenders and equity investors. Clearly, this will require accounting and auditing standards and practices closely conforming to IAS and IFRS. Weakness in this area is one main reason why FDI inflows in Bangladesh are quite low compared with our neighboring economies. He further said that he would like to take this opportunity to urge our accounting profession and all our financial and non-financial businesses to rise to the challenge of attaining IAS and IFRS compliant

standards and practices sooner rather than later. “I can assert from BB’s own experience that a swift transition to full IAS and ‘FRS convergence will be onerous but entirely feasible; we at BB initiated the process in 2003 and completed it successfully within a year”, stated the Governor After concluding his speech, the Chief Guest formally inaugurated the IFRS training.

As a Session Chairman Mr. Jamal Uddin Ahmad shared his experience and said, “We have been working for over 35 years to associate ICAB with the English Institute of Chartered Accountants. Most of the senior members spent a lot of time and energy to bring about this union. We all wanted to be as good as the English Chartered Accountants. To extend that we did everything possible. Today we are talking about International Reporting which is the word of past 35 years of this Institute”. Mr. Jamal thanked all of the members who contributed in this area. Standard of Accounts keeping of Bangladesh Bank is as good as anywhere in the world, he opined.

About the International Reporting he said this has become very important for us. Bangladesh is an emerging country. There is a good connection and potential all over the world that the people are earning money in a corner of this world and transferring this to the country within a very short time. So, Banking System has to be tremendously important. If the Banking System is good then the whole process of remittance is very easy for all concerned.

ICAB Secretary, Mr. N I Chowdhury, FCA, discussed mainly on twinning project. He explained on three issues like ICAB Curriculum which is prepared based on ICAEW Curriculum, Quality Assurance Department that has been working restlessly for the improvement of the Quality of CA firms and the IFRS Training, while making his concluding remark at the ceremony.

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IFRS Training Course will upgrade the Accounting and Auditing PracticeSpeakers at the Ceremony



s Parveen Mahmud, FCA visited London, UK from July 07-13, 2011 to attend meetings with the ICAB- UK Chapter, ICAEW and with few institutions to explore various prospects and technical assistance to strengthen and implement ICAB’s new education curriculum for global opportunities.

During her visit at ICAEW, she had a meeting with ICAEW. Mr. AKM Fazlur Rahman, FCA, Chairman, ICAB UK Chapter Management Committee joined the meeting briefly, during meeting with the Mr. Clive Parritt, President, ICAEW. Mr. Michael Izza,

Chief Executive, ICAEW also attended the discussions. They had discussed on progress of ICAB under twinning arrangements and way forward.

President also discussed the different departments on various issues related to education, training, website, library etc. she had series of meetings. These were to observe the ICAEW Quality Assurance Department (QAD), discussion and sharing of the ICAB QAD activities & experience and the future plan for further improvements of the QAD performance based on suggestions from ICAEW, discussion on ICAEW QAD operational and

administrative activities. There was a discussion on working procedures of ICAEW Professional Conduct Depart-ment (PCD) and observe the disciplin-ary committee hearing lively. She also had discussion on the dealings for maintaining the relationship with the ICAEW members, briefly talked about the learning materials and arrangement of tuition for students etc.

ICAB President had a meeting on July 09, 2011 with members of the ICAB UK Chapter at Mumbai Square, Middlesex, London. Mr AKM Fazlur Rahman, FCA, Chairman, UK Chapter made welcome speech. Dr Javed Siddiqui, made a presentation on his research on auditing profession in Bangladesh.

President attended A CPD seminar as chief guest, titled “Tax Amnesties” on July 11, 2011, at Idea Store, White Chapel, London. Keynote paper was presented by Mr Sean Wakeman, Partner, Crowe Clark Whitehill, Chartered Accountants, UK.

A meeting was held on July 12, 2011 with ICAB UK Management Committee at La Indes Porte, London, UK. There were discussion on many outstanding issues to increase connectivity and strengthen ICAB UK Chapter.

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President visits UK Chapter

hree member team, lead by ICAB, President attended SAFA Assembly on July 25, 2011 followed by International Conference on July 26-27, 2011, arranged by the Institute of Chartered Accountants of Pakistan (ICAPs) on their Golden Jubilee, at Karachi, Pakistan. Mr. A. K. Chowdhury, FCA, Managing Partner, Hoda Vasi Chowd-hury & Co, and Mr. Syful Islam, FCA, Council Member-ICAB and Managing Partner, Syful Shamsul Alam & Co. were in the team. President, ICAB participated in the panel discussion: “Fostering Talent for Leadership- A Regional Perspective”.

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SAFA at Karachi, Pakistan


he Institute of Chartered Accountants of Bangladesh (ICAB) held a consultation meeting with The Bangladesh Investment Climate Fund (BICF) on certain aspects of the current Companies Act and with a view to suggesting improvements as part of the drafting a new Companies Act. The meeting was held on September 27

2011 at ICAB premises. The main objective of the meeting was to discuss several important issues of the present Companies Act of Bangladesh, suggest some improvements for reforms especially in case of bringing transparency and accountability by making the Act more users friendly.

Ministry of Commerce, GOB has constituted a 17 member Committee where, ICAB is a member and Honourable Secretary, MOC is the Convenor, for “Drafting a New Companies Act for Bangladesh”, for improving business operating environment in Bangladesh. The Bangladesh Investment Climate Fund (BICF) is providing advisory services by providing both legal and technical support to draft the Act.

Ms. Jisha Sarwar-Consultant/PSD Specialist, Ms. Antania Menezes-PSD Specialist, Ms. Parveen Mahmud FCA-President, ICAB, Mr. Md. Shahadat Hossain FCA, VP, ICAB, Mr. Akhter Sohel Kasem FCA, Mr. ASM Nayeem FCA, Mr. M. Humayun Kabir FCA, Council Members & Past Presidents, ICAB, Mr. Snehashish Barua- Partner, Syful Shamsul Alam & Co.,Chartered Accountants and Mr. N I Chowdhury FCA-Secretary, ICAB were present at the meeting.

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Meeting held between ICAB and BICF

5 member ICAB delegation headed by Ms. Parveen Mahmud FCA, President-ICAB, attended the 18th Conference of the Confederation of Asian and Pacific Accountants (CAPA), held in Brisbane, Australia from 6 – 9 September, 2011. The Conference was organized by CAPA Australia and the Institute of Chartered Accountants in Australia (ICAA).The Conference was designed to provide relevant and up-to-date practical information and solutions as

well as offering a social program that would allow members and their families to experience one of the world's most desirable destinations. Some 80 speakers were involved in a wide range of plenary and technical sessions.The message of the Conference was clear – the Asia-Pacific region is becoming an economic powerhouse. As the region grows, the accountant’s role becomes more important. Accountants are now being considered

as advisors to businesses, not just book-keepers. In keeping with globalization and the demand of businesses worldwide, those in the profession have called for adoption of international accounting standards and integrated reporting to achieve sustainability. Similar sentiments were also reflected for the public sector.

Board meetings were held on 9-10 September, and this was the last meeting chaired by Prof. In Ki Joo as his term as President ends. He delivered a final President’s report which captured significant CAPA activities over the two years he held Presidency. Certain important agenda items were dealt with via breakout discussion groups .Extraordinary General Meeting (EGM), Committee Meetings, Assembly of Delegates (AOD) were also held. This three-day conference attracted accounting professionals from across the entire Asia-Pacific region. Other members of the ICAB delegation were Mr. Masih Malik Chowdhury FCA, Mr. Anwaruddin Chowdhury FCA, Mr. M. Farhad Hussain FCA, and Mr. Md. Syful Islam FCA, all of whom are Members Council, ICAB.

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ICAB Delegation attends the18th CAPA Conference




he Institute of Chartered Accoun-tants of Bangladesh (ICAB) organized a Certificate Giving Ceremony for the participants of International Financial Reporting Standards (IFRS) Training Course on 30 September, 2011 at ICAB Auditorium. Mr Shawkat Ali Waresi, Joint Secretary (IIT), Ministry of Commerce, GoB was the Chief Guest on the occasion. This was a long term training course which was earlier formally inaugurated by Dr. Atiur Rahman, Governor, Bangladesh Bank.

Ms. Parveen Mahmud FCA, President, ICAB in her address of welcome said this was ICAB’s first effort to introduce IFRS training course and it was inaugurated on 1st July 2011 by Dr. Atiur Rahman, Governor, Bangladesh Bank. “This is indeed a very special occasion that we have successfully completed the first endeavor and today is the certificate giving ceremony. “Overall the course provided valuable insight and knowledge of IFRS and their application in our country context,“ she stated. She showed her gratitude to the trainees for their active participation. She informed that ICAEW signed 2 years Twinning Project contract in 2007 with ICAB funded by the Government of Bangla-desh and the World Bank. It opened the horizon of global opportunities for

ICAB Members and ICAB was striving continuously to achieve the goal of attaining global standards. She acknowledged the Government of Bangladesh and World Bank support for financing the training of trainers in the UK under twinning arrangement with ICAEW and in Malaysia with CAPA.

ICAB has started the implementation of the objectives of that training course by starting IFRS training. She said with pride and determination that this was the end of the beginning. In coming days it would be a continuous process with more and more improvements. We would also strengthen training of trainers of IFRS training gradually with increasing capacity. This IFRS training would be introduced online in future, she added. She informed the audience that there was another new project of two and half years. She hoped that we would get all the support to activate the project at the earliest.

Mr. Waresi informed that in September 2007 on behalf of Bangladesh Govern-ment he signed an agreement with ICAEW under which ICAEW agreed to strengthen the capacity of ICAB. In April 2008 he signed another agree-ment with ICAEW under which ICAEW

and London School of Economics agreed to design, develop and deliver a course of train the trainers in IFRS. in this course 35 regulators, chartered accountants, cost and management accountants, university teachers and high officials from Ministry of commerce, Ministry of finance, Bangladesh Bank, National Board of Revenue, Securities and Exchange Commission, Department of insurance went to London, where they received training from ICAEW and London School of Economics It was originally planned that these 35 trainees would train the members of their respective organizations. But unfortunately that has not happened. Mr. Waresi praised ICAB for utilizing the valuable training received from London. He congratu-lated those who successfully completed the course of IFRS training and wished to utilize this training in improvement of the financial reporting standards of our country. It will help to build the financial infrastructure of the country, to stabilize our capital market, to earn more revenue” he added.

Mr. Humayun Kabir FCA, Council Member & Past President, ICAB said in his address, “Only ICAB is utilizing the training knowledge among the 35 trainees that was received from London. Besides ICAB always gives priorities on the IFRS related issues as a subject of CPD Seminar” said Mr. Kabir in his speech. He urged to the trainees that it was not only a qualifying certificate by ICAB. Each trainee should keep the practice of this knowledge and disseminate this to the society. He also said that the standards of IFRS were not fixed. These were frequently being updated. Because the business world with which accoun-tancy profession was related is constantly changing. So every partici-pant should keep themselves updated with the changing business world.

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Each trainee will work as an ambassador of IFRS to his OrganizationSpeakers at the occasion


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