Analysts welcomed the long-cherished Financial Reporting Act approved by the cabinet, saying it would help break nexus between auditors and company managements in preparing financial reports.
They emphasised on stricter implementation of the act to bring wrongdoers under a legal framework to address the fundamental issues of corporate governance.
But the stock exchanges remained skeptical over setting the accounting standards even after enactment of the act.
The cabinet on Monday approved the draft of the Financial Reporting Act (FRA), 2013, which was initiated by the last caretaker government that approved a financial reporting ordinance in 2008, but the Awami League-led government did not pass it in parliament after assuming power in 2009.
“It should have been approved earlier. But it is better than never,” former Bangladesh Bank Governor Salehuddin Ahmed told the Dhaka Tribune yesterday.
“In absence of proper rules and regulations, errant auditors and company managements could not be brought under the book. It resulted in fabricated financial statements in many cases,” he said.
The financial reporting act will ensure quality of reports, disclosures, financial transparency and accountability, which will help investors being well informed about a company’s financial strength.
Former finance adviser to the last caretaker government Mirza Azizul Islam said it would help ensure transparency of audit systems, forming a unique structure for the monitoring of firms listed with stock exchanges and financial institutions.
“It is a positive move,” he said. In many cases, the financial statements did not reflect real picture of companies’ financial strength because of collusion between the company management and the auditor.
However, an independent oversight body is needed to regulate the audit firms. Though ICAB has its own panel to do this, but because of its conflict of interest, doubt always remains about a transparent financial statement, he said.
“Though securities regulator takes some enforcement action against listed companies for financial jugglery, but gap always exists. Financial reporting act will help bridge this gap,” he said.
He said hopefully the tendency of the financial jugglery will reduce if authorities enforce the act properly and the proper account reporting will help widen accountability of the country’s growing corporate sector.
Chittagong Stock Exchange president Al-Maruf Khan said they have not been
consulted while drafting the financial reporting act. “So, we have generally certain reservation about the implication on the transparency on the financial reporting in the country.”
Khan remained doubtful over the proper implementation of the act and said nobody could really address the issue of accounting standard unless the rules and regulations are implemented properly.
Referring to the financial reporting regime in India, he said stock market of India is many times bigger than Bangladesh and one of the largest and matured markets in Asia.
“In this context, India does not have financial reporting act. They are managing through a committee headed by a renowned chartered accountant, but not headed by the SEBI (Securities Board of India),” he said.
Khan said the mandate of that particular committee covers everything that is expected from the proposed act.
It is more important because the financial reporting act as published in many newspapers indicate that the composition of a council is essentially made by the non-accountant, who can contribute towards standards setting process of this particular technical matter, he said.
According to the draft financial reporting act, a council of 12 members will be formed under the leadership of Bangladesh Bank’s governor as per the law including the Bangladesh Securities and Exchange Commission Chairman, NBR Chairman, Chairman of Insurances Development and Regulatory Authority and representatives of the finance ministry’s Banking and Financial Institutions Division. The council will have three departments: standard setting, monitoring and enforcing.