University of Dhaka
Executive Masters of Business Administration
Assignment on
Regulatory Framework of Financial Reporting in
Bangladesh
Submitted To
Prof.Dr. AMIRUS SALAT
Submitted By
Md Ashraful Rahman
ID: 220201015
Subject: Corporate Financial Accounting (6101)
Submission Date: 27th October, 2023
Financial Reporting:
Financial reporting is the process of documenting and communicating
financial activities and performance over specific time periods, typically
on a quarterly or yearly basis. Companies use financial reports to
organize accounting data and report on current financial status.
Also, financial reporting is a crucial element of regulatory compliance
for the organizations. It entails the compilation and dissemination of
financial statements and other reports that give stakeholders a
thorough picture of the financial performance, status, and prospects of
a business. Financial reporting also ensures that investors obtain
accurate information about a company’s operations, allowing them to
make educated investment decisions.
Financial Reporting Authorities in Bangladesh:
Different types of organizations are regulated by different regulators
under different regulations. So, disclosure requirements are different
for different organizations. Some companies are financial in nature
whereas others are non-financial in nature. 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 (Hossain 2011, pp. 23).
RJSC deals with the different types of entities like private companies,
public companies, foreign companies, partnership firms, etc.
Bangladesh Bank (BB), central bank of Bangladesh, regulates all Banking
and Non-banking Financial Institutions. Securities and Exchange
Commission (SEC) regulates all of the listed companies whereas
Insurance Development & Regulatory Authority (IDRA) Bangladesh is
authorized to regulate the insurance companies. So, it is important to
know the disclosure provisions under various legislations. The
Companies Act 1994, the Bank Companies Act 1991, the Financial
Institutions Act 1993, the Insurance Act 2010, the Securities and
Exchange Ordinance 1969, Securities and Exchange Rules 1987,
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 in
Bangladesh. So, it is important to identify the disclosure requirements
of organizations depending upon the nature and their regulators.
The Provisions Regarding Financial Reporting under the
Companies Act 1994:
After
the establishment of Pakistan in 1947, Bangladesh became a
province of Pakistan and was governed in accordance with the
provisions of the Companies Act, 1913. After its own independence in
1971, Bangladesh adopted the old Indian Companies Act 1913
(amended in 1936) and replaced it subsequently by the Companies Act,
1994. This act is based on the Indian Companies Act 1956. All of the
companies (non-financial, banking financial institution, non-banking
financial institution, insurance company) registered with RJSC have to
follow the provisions of the Companies Act 1994. The main provisions
of the Companies Act 1994 regarding financial reporting are laid down
under Sections 181 to 185. Section 181(1) of the Companies Act 1994
represents the obligation to keep the proper books of accounts. Section
183(2) states that the maximum time limit 5 to present a balance sheet
and a profit and loss account at the annual general meeting is nine
months except for companies having businesses outside Bangladesh.
However, the Registrar may, for any special reason, extend this by a
period not exceeding three months. According to the above provision,
companies are not required to prepare any interim financial
reports/statements. Section 184(1) requires directors' report along with
financial statements.
The Provisions Regarding Financial Reporting under
Insurance Act 2010:
Previous Insurance Act 1938 was repealed by Insurance Ordinance 2008
(Ordinance No. 47 of 2008). On March 2010 the Insurance Act 2010 was
enacted. All insurance companies are operated under the Insurance Act
2010. The main provisions for mandatory disclosure of the insurance
companies in Bangladesh under the Insurance Act 2010 are discussed in
Section 26 to Section 41. As per Section 26 of the Insurance Act 2010
where the insurer carries on business of more than one class, he shall
keep a separate account of all receipts and payments in respect of each
class of insurance business. According to section 27, every insurer shall,
at the expiration of each calendar year, prepare a balance sheet, a
profit and loss account. It is also mentioned in this section that in
respect of each class or sub-class of insurance business for which he is
required to keep a separate account of receipts and payments, he has
to prepare a revenue account in accordance with the provision. He has
to prepare a statement mentioning the names of the persons involved
in management and their activities (Section 27). The audited accounts
and the abstract shall be printed, and four copies thereof shall be
furnished as returns to the authority (Section 32). It is also a
requirement of Section 34 that every insurer shall furnish to the
authority a certified copy of every report on the affairs of the concern
which is submitted to the members or policy-holders of the insurer
immediately after its submission to the members or policy-holders as
the case may be. As per Section 36, every return furnished to the
authority or a certified copy thereof shall be kept by the authority and
shall be open to inspection; and any person may procure a copy of any
such return. Every insurer shall submit a statement of investments of
assets to the authority under Section 41 of this Act
The Stock Exchanges of Bangladesh and Financial
Reporting:
Development of financial reporting is related to the industrial and stock
market growth of developing countries. It is observed that high
standard 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). There are two stock exchanges in Bangladesh – Dhaka Stock
Exchange (DSE) and Chittagong Stock Exchange (CSE). Dhaka Stock
Exchange (DSE) was established in 1954 as a corporate body under the
Companies Act 1913. However, it operated on a very small scale in the
first 25 years of its existence. The DSE did not develop under the
Pakistani regime during 1947-1971. After the emergence of Bangladesh
in 1971, the DSE market ceased to exist due to the government policy
of nationalizing all the major industries of the country (Hossain 1999,
pp. 80). In 1976, the DSE was reactivated with nine listed companies
due to the change in the attitude of the then government towards the
development of the private sector and promotion of a market
economy. As a result, the activities of the stock exchange expanded
significantly since 1983 (Huq and Huq 1988). The Chittagong Stock
Exchange (CSE) was established in 1995 as a not-for-profit public
limited company. Both DSE and CSE have issued regulations namely
Listing Regulations. In both of the regulations, Regulation 36 is related
with disclosure. As per this regulation when a dividend (Interim or
Final) is declared after the close of a financial year, such announcement
to be made to stock exchange 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 etc. So, there is no additional disclosure
requirement, but the financial statements have to 11 be authenticated
by the chairman, the chief executive officer, the finance director or the
chief accountant.
A brief overview of Financial System Regulatory Policy
of Bangladesh bank:
Bangladesh Bank acts as the Central Bank of Bangladesh which was
established on December 16, 1971 through the enactment of Bangladesh
Bank Order 1972- President’s Order No. 127 of 1972 The main functions
of BB are (Section 7A of BB Order, 1972)
1. to formulate and implement monetary policy;
2. to formulate and implement intervention policies in the foreign
exchange market;
3. to give advice to the Government on the interaction of monetary
policy with fiscal and exchange rate policy, on the impact of
various policy measures on the economy and to propose
legislative measures it considers necessary or appropriate to
attain its objectives and perform its functions;
4. to hold and manage the official foreign reserves of Bangladesh;
5. to promote, regulate and ensure a secure and efficient payment
system, including the issue of bank notes;
6. to regulate and supervise banking companies and financial
institutions.
Core Policies of Central Bank
Monetary policy
The main objectives of monetary policy of Bangladesh Bank are:
1. Price stability both internal & external
2. Sustainable growth & development
3. High employment
4. Economic and efficient use of resources
5. Stability of financial & payment system
Bangladesh Bank declares the monetary policy by issuing Monetary
Policy Statement (MPS) twice (January and July) in a year. The tools and
instruments for implementation of monetary policy in Bangladesh are
Bank Rate, Open Market Operations (OMO), Repurchase agreements
(Repo) & Reverse Repo, Statutory Reserve Requirements (SLR & CRR).
Reserve Management Strategy
Bangladesh Bank maintains the foreign exchange reserve of the country
in different currencies to minimize the risk emerging from widespread
fluctuation in exchange rate of major currencies and very irregular
movement in interest rates in the global money market. BB has
established Nostro account arrangements with different Central Banks.
Funds accumulated in these accounts are invested in Treasury bills,
repos and other government papers in the respective currencies. It also
makes investment in the form of short-term deposits with different
high rated and reputed commercial banks and purchase of high rated
sovereign/supranational/corporate bonds. A separate department of
BB performs the operational functions regarding investment which is
guided by investment policy set by the BB's Investment Committee
headed by a Deputy Governor. The underlying principle of the
investment policy is to ensure the optimum return on investment with
minimum market risk.
Insurance Authority:
Insurance Development and Regulatory Authority (IDRA) was instituted
on January 26, 2011 as the regulator of insurance industry being
empowered by Insurance Development and Regulatory Act, 2010 by
replacing its predecessor, Chief Controller of Insurance. This institution
is operated under Ministry of Finance and a 4-member executive body
headed by Chairman is responsible for its general supervision and
IDRA has been established to make the insurance industry as the premier
financial service provider in the country by structuring on an efficient
corporate environment, by securing embryonic aspiration of society and
by penetrating deep into all segments for high economic growth. The
mission of IDRA is to protect the interest of the policy holders and other
stakeholders under insurance policy, supervise and regulate the
insurance industry effectively, ensure orderly and systematic growth of
the insurance industry and for matters connected therewith or incidental
thereto.
Regulator of Capital Market Intermediaries
Securities and Exchange Commission (SEC) performs the functions to
regulate the capital market intermediaries and issuance of capital and
financial instruments by public limited companies. It was established on
June 8, 1993 under the Securities and Exchange Commission Act, 1993.
A 5-member commission headed by a chairman has the overall
responsibility to administer securities legislation and the Commission is
attached to the Ministry of Finance.
The mission of SEC is to protect the interests of securities investors, to
develop and maintain fair, transparent and efficient securities markets
and to ensure proper issuance of securities and compliance with
securities laws. The main functions of SEC are:
I.
II.
III.
IV.
V.
VI.
VII.
VIII.
Regulating the business of the Stock Exchanges or any other
securities market.
Registering and regulating the business of stock-brokers, subbrokers, share transfer agents, merchant bankers and
managers of issues, trustee of trust deeds, registrar of an issue,
underwriters, portfolio managers, investment advisers and other
intermediaries in the securities market.
Registering, monitoring and regulating of collective investment
scheme including all forms of mutual funds.
Monitoring and regulating all authorized self-regulatory
organizations in the securities market.
Prohibiting fraudulent and unfair trade practices in any securities
market.
Promoting investors’ education and providing training for
intermediaries of the securities market.
Prohibiting insider trading in securities.
Regulating the substantial acquisition of shares and take-over of
companies.
Conclusion
To sum up according to Companies Act 1994 it provides basic
requirements for financial reporting by all companies in Bangladesh. It
is silent about either Bangladesh Financial Reporting Standards
(BFRS/BAS) or International Financial Reporting Standards (IASs/IFRSs).
However, The Securities and Exchange Commission of Bangladesh
regulates financial reporting by listed companies. SER 1987 requires
compliance with IASs/IFRSs as adopted in Bangladesh (these are known
as Bangladesh Financial Reporting Standards and include Bangladesh
Accounting Standards).