Financial reporting lapses stem from FRC’s lax approach: experts
Financial Reporting Council, Bangladesh (FRC) needs to be more proactive in its approach to establish efficient corporate governance and serve people authentic information and true services, experts said yesterday.
Many well established small and medium enterprises (SMEs) have been running their operations while declaring inaccurate audit reports and flouting regulations as the FRC has not acted strongly enough to prevent such illicit acts.
Since many of these issues often go overlooked or unchecked by the authorities concerned, ordinary people and investors in most cases end up getting cheated, they added.
Mohammad Muslim Chowdhury, comptroller and auditor general of Bangladesh, said the financial reporting act covers a range of financial issues, such as audits, in order to ensure accountability and transparency in the country's financial reporting procedures.
But for the act to be properly implemented, Bangladesh needs more accounting professionals and the FRC needs to improve on transparency issues, he told a virtual discussion on the FRA organised by the Dhaka Chamber of Commerce and Industry (DCCI).
"To that end, the FRC can collaborate with Bangladesh Bank, the Bangladesh Securities and Exchange Commission, Ministry of Finance or any other related regulatory bodies," Chowdhury said.
According to the auditor general, the DCCI was for the FRC motivating SMEs to improve corporate governance in the sector.
Meanwhile, DCCI President Shams Mahmud said the FRC needs to be more effective in its attempt to bring significant changes to the quality of audit and corporate financial reporting systems.
"This would also help address the wilful loan defaulting problem that is prevalent in the banking sector," he added.
The capital market in Bangladesh is underdeveloped while its market capitalisation to GDP ratio is one of the lowest in the world.
Transparent financial reporting from both listed and non-listed companies is crucial to gain investor confidence and subsequently attract investment in the capital market.
To attract more foreign investment, the micro, small and medium enterprises (MSMEs) need to meet the standards set by International Accounting Standards Board when filing their financial reports as well.
Simple, user-friendly accounting and financial reporting guidelines for the MSMEs need to be introduced in order to ensure better access to finance for the sector and so, the FRC needs more professional resources to implement the act, Mahmud said.
Aftab Ul Islam, a director of Bangladesh Bank and former president of the DCCI, said a rating system, such as the CAMELS rating, could be put in place for audit firms.
The CAMELS is an international rating system used by regulatory banking authorities to rate financial institutions, according to the six factors represented by its acronym "Capital adequacy, Asset quality, Management, Earnings, Liquidity, and Sensitivity".
"We have to enhance our credibility and to do so, we can learn from other countries that have successfully implemented financial reporting regulations," Islam added.
Mohammad Mohiuddin Ahmed, executive director of Financial Report Monitoring Division, presented a keynote paper during the event.
Good financial reports will make the country's businesses comparable to their global counterparts, ensure higher ethical values and boost investor confidence, he said.
If the international accounting standard (IAS) or international financial reporting standard (IFRS) are not met, financial reports from local companies will not be accepted either domestically or internationally, the DCCI said in a statement.
According to M Anwarul Karim, executive director of the FRC's Standard Setting Division, the organisation was working to enhance financial reporting standards by conducting numerous outreach programmes and training sessions.
Karim also said if any business feels that meeting the IFRS was too complicated for them, they could hire a consultant or outsource the job entirely.
Javed Siddiqui, associate professor of the University of Manchester, said the FRC has been given tremendous authority and therefore, should act to maintain a transparent financial reporting system among auditors.
The key factors to preparing a credible audit report acceptable both locally and internationally are efficient corporate governance and a positive attitude of the company's management, he added.
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