Financial Reporting Environment of Bangladesh: Standard, Standard Setter and Comparative Accounting System MD TAPAN MAHMUD (D-1) INTERNATIONAL ACCOUNTING (OZU SEMINAR) GRADUATE FACULTY OF ECONOMICS, KYUSHU UNIVERSITY Flowchart of Presentation Statutory Framework Statutory Bodies in Accounting Accounting Standards in Bangladesh Accounting Standard Setting Process in Bangladesh Issues in IAS (as BAS) and IFRS (as BFRS) Application in Bangladesh The AAA’s morphology for Comparative Accounting Systems of Bangladesh 2 Statutory Framework Corporate financial reporting requirements in Bangladesh: Companies Act of 1994 Finance Act of 2014 Bangladesh Securities and Exchange (BSEC) Rules of 1987 Banking Act of 1991 Insurance Act of 2010 Bangladesh Chartered Accountants Order of 1973 Cost and Management Accountants Ordinance of 1977 3 Statutory Bodies in Accounting Institute of Chartered Accountants of Bangladesh (ICMAB) Established in 1973 Statutory Audit of corporate sector accounts Regulatory matters of the profession and professional accountants Standards setting and adoption of international standards (Sole Authority) ICAB issues BAS (Bangladesh Accounting Standard) and BSA (Bangladesh Standards on Auditing) Institute of Cost and Management Accountants of Bangladesh (ICMAB) Established in 1977 Practice and promotion including limited audit (cost accounting records) of cost and management accounting It doesn’t set any standards by itself 4 Statutory Bodies in Accounting 5 The Financial Reporting Act of 2015 established the Financial Reporting Council (FRC) with the mandate to monitor the performance of auditors in Bangladesh ICAB operates under the oversight of the FRC ICAB is also accountable to SEC (Securities and Exchange Commission) ICAB has following international membership: The International Federation of Accountants (IFAC) The International Accounting Standards Board (IASB) The Confederation of Asian and Pacific Accountants (CAPA) The South Asian Federation of Accountants (SAFA) Accounting Standards in Bangladesh Bangladesh Accounting Standards (BAS); adopted from IAS Bangladesh Financial Reporting Standards (BFRS); adopted from IFRS 6 7 BAS Vs IAS 8 BFRS Vs IFRS Accounting Standard Setting Process in Bangladesh 9 Identification of the broad Areas Constitution of the study groups for preparing Preliminary Drafts (PD) Consideration and revision of the PD Preparation of Exposure Draft (ED) according to discussion and comments Integrating comments, finalizing ED, submission to ICAB council for approval Issuing the ED, inviting ICAB members’ comment Circulation of the PD among the council members of ICAB Meeting with the TRC-members from specified outside bodies to ascertain their views Consideration of the draft accounting standard (modification, if required) The finalized accounting standard is issued by ICAB council as BAS ICAB has Technical and Research Committee (TRC), working under the guidance of ICAB council Current status of IFRS Adoption 10 Bangladesh has made a public commitment in support of moving towards a single set of global accounting standards (specifically IFRS) Bangladesh has adopted IFRS Standards as Bangladesh Financial Reporting Standards (BFRS); and the IFRS for SMEs Standard All companies whose securities are traded on the Dhaka Stock Exchange (DSE) and/or the Chittagong Stock Exchange (CSE) are required to follow IFRS Standards as adopted by the ICAB (i.e., BFRS) Current status of IFRS Adoption 11 IFRS Standards as adopted by the ICAB are required in the separate financial statements of companies whose securities trade in a public market IFRS Standards as adopted by the ICAB are permitted (but not required) in the financial statements of companies whose securities do not trade in a public market All or some of the foreign companies whose securities trade in a public market are required to use IFRS Standards in their consolidated financial statements IFRS Standards are incorporated into law or regulations (enforcement by SEC) Issues in IAS (as BAS)and IFRS (as BFRS) Application in Bangladesh 12 Despite adoption of certain IASs there is no legal enforceability of these standards. SEC has made it mandatory for all listed companies to comply with IASs. For others, the compliance is optional. Many laws, rules and regulations are (British) colonial in origin and their character is detrimental to the development of financial reporting with complete adoption of standards The extent of disclosure requirements under IAS/IFRS are progressively increasing, which is resented by the minimum disclosure oriented corporate culture prevalent in Bangladesh Issues in IAS (as BAS)and IFRS (as BFRS) Application in Bangladesh 13 Educational standards of the country are either inappropriate or not capable to understand, interpret and apply IAS and there is acute need for training the trainers. . This professional constraint is a major obstacle which often impedes the practical benefits from implementation of standards and may even lead to misleading views being presented by financial information Implementation of standards entails incremental costs of reporting entities in ensuring compliance with IAS through employment of appropriately qualified professionals for preparation of financial statements. Audit fees would also be increased for ensuring such compliance, which is resented and may even result in discontent for application of standards Issues in IAS (as BAS)and IFRS (as BFRS) Application in Bangladesh 14 A substantial portion of the country’s economy is outside the purview of any kind of formalized financial reporting structure let alone application of IAS Resource constraints of ICAB, the main change agent. Throughout the world accounting regulatory bodies do spend a lot of money on training, research and human resources development sector relating to accounting. In Bangladesh, this has been one of the most neglected areas The Company Act 1994 does not include any provisions for mandatory adherence of the adopted IAS/IFRS in practice. The laws of Chartered Accountant 1973 have also not been amended to require mandatory compliance to the adopted standards by ICAB members 15 The AAA’s morphology for comparative accounting systems of Bangladesh Bibliography 16 https://www.ifrs.org/use-around-the-world/use-of-ifrs-standards-byjurisdiction/bangladesh/ https://www.ifac.org/about-ifac/membership/country/bangladesh http://documents.worldbank.org/curated/en/890461479708805505/BangladeshReport-on-the-Observance-of-Standards-and-Codes-ROSC-Accounting-andAuditing-A-A Miazee, M. H. (2014), Problems of Implementing of International Financial Reporting Standards in Bangladesh, European Journal of Business and Management, 6(36):174-181. Nobes, C. and Parker, R. (2016), Comparative International Accounting, 13th Ed, Pearson, England. Tasnim, S. H. (2015), Implementation Dilemma of International Accounting Standards and International Financial Reporting Standards in Bangladesh, ASA University Review, 9(1): 103-117.
