Design of accounting standards in Bangladesh is inconsistent because no one set of standards is applicable for financial reporting by companies, says a World Bank report.
This leads to references to “standards applicable to Bangladesh” in financial statements and audit reports, the report said adding that this can be confusing to users, reducing the usefulness of financial statements in the absence of more and specific information.
To assess the practice of accounting standards, 32 sets of audited financial statements of different sectors, including banks, insurance, state-owned enterprises and manufacturing were reviewed by the World Bank to test compliance with applicable accounting standards.
The report titled “The Observance of Standards and Codes (ROSC) 2014” found that the non-compliance is common across each category of financial statements mentioned above. This is the second ROSC for Bangladesh, a follow up to the previous 2003 report.
The most common findings of the reviews included explicit and unreserved disclosures of IFRS (International Financial Reporting Standards) conformity that were made without compliance and without clarifying the reasons of such non-compliance, correcting previous year’s figures without disclosure, inadequately disclosed of post balance sheet events, effects not provided in the financial statements, transactions with related parties not disclosed adequately, grants related to fixed assets not accounted for properly, provisions not made for losses in financial instruments portfolios and lack of disclosures relating to impairment of assets.
The report identified several challenges, including the absence of a financial reporting framework in the state-owned commercial banks.
To overcome the challenge, the country needs a well-defined strategy and regulatory framework for the accountancy and audit profession. The key regulators should strengthen their capacity for reviewing the financial statements of the companies they regulate to ensure compliance with laws and financial reporting standards. For this to happen, the country needs more qualified accountants to meet the evolving demands of both the public and private sectors.
“Bangladesh needs to increase investor’s confidence and boost private investment to achieve its vision of moving up comfortably to middle- income country status from the current low middle-income status,” said Christine Kimes, acting country head, World Bank Bangladesh.
“Accelerating reforms to improve the quality of financial reporting and auditing will strengthen capital markets and enhance accountability and transparency of public and private sector entities.”
The report suggested that Bangladesh needs to develop a structured financial reporting framework for the state-owned enterprises and other public sector entities to accelerate economic growth and quality of service delivery.