Pragati Insurance’s financial reports fall foul of watchdog rules | The Daily Star
12:00 AM, August 10, 2020 / LAST MODIFIED: 02:15 AM, August 10, 2020

Pragati Insurance’s financial reports fall foul of watchdog rules

Anomalies in preparing financial reports of listed companies are not rare in Bangladesh and the authorities have tracked down yet another case.

After gross irregularities were detected in Pragati Insurance's financial statements for 2019, the Financial Reporting Council (FRC), the watchdog for financial reporting and auditing practices in Bangladesh, has decided to review the reports.

Hoda Vasi Chowdhury & Company, the auditor of Pragatai Insurance, recently issued the auditor's report on financial statements and other issues in the annual report of the insurer that is listed with the Dhaka and Chattogram bourses.

The insurer announced 22 per cent cash dividend for the year on the basis of the financial report that will be published soon.

"Pragati Insurance has not followed the international financial reporting standards (IFRS) properly in preparation and presentation of the financial statements," the auditor said in its report.

But all companies have to follow the standards as per the Bangladesh Securities and Exchange Commission Ordinance, 1969 and other laws of the country.

In addition, the insurer did not disclose the reconciliation of net income for non-cash items, non-operating items and net changes in operating accruals.

The auditor could not verify the accumulated liability for income tax charges for several years reported on 31 December 2019 at Tk 53.77 crore in the absence of relevant information.

"We are not aware of pending cases of assessment and related liabilities, disputed or agreed, as the related information was not made available for our review," the auditor said, adding that deferred tax has also not been calculated as required.

The auditor could not verify if the company has made investments in designated instruments and in the manner prescribed by the Insurance Development and Regulatory Authority (IDRA).

On the other hand, Pragati Insurance incurred management expenses including insurance commission in excess of the limit set by the IDRA.

The correctness of the net book balance of fixed assets as of 31 December 2019 amounting Tk 229.21 crore could not be verified due to the absence of necessary records, the auditor said.

"The insurer did not set aside the due part of its profits in relation to workers' profit participation and welfare fund as required under the Bangladesh Labour Act 2006 and did not also forward any justification in support of its inaction."

The payables against expense (withholding tax) and outstanding dividend are yet to be paid to the respective persons and authorities, the auditor said.

"On the other hand, there is receivable from Jamuna Resort, which may not be realised."

The auditor found different types of reserves that the insurer created without any basis.

Reserves for exceptional loss are being carried in the company's books since long and the amount now stands at Tk 93.53 crore.

The amount has been charged to the profit and loss account and accordingly tax benefits have been availed under the income tax ordinance.

"However, there was no basis for such reserves as per the accounting standards."

Pragati Insurance did not explain to the auditor about the contingency reserve with the balance of Tk 10.58 crore that has been carried since 2000.

"It's good to see that auditors are now reporting such gross irregularities they find while conducting their statutory audits," said Sayeed Ahmed, executive director of the FRC, while commenting on the findings of Hoda Vasi Chowdhury & Company.

The auditor, however, should have mentioned that the report did not depict the true picture of the company.

In the report, the auditor stated that they could not verify some of Pragati Insurance's assets' recognised values, which were material in amounts.

"Then how could the auditor justify its opinion about the fairness of the financial statements?" Ahmed questioned.

The FRC has now decided to review the audit file of the auditor to verify its justification behind its opinion and the procedure it followed.

Md Rezaul Karim, chief executive officer of Pragati Insurance, admitted that there were some findings from the auditor that should have been addressed earlier.

"We have no bad intention. We have already decided to set aside the due part of our profits in the workers' profit participation and welfare fund as per rules."

He went on to blame the bedding in period for the company's chief financial officer for the discrepancy.

"Our CFO was newly appointed then, so it was quite tough to accommodate all the documents to the external auditor," Karim added. Shares of Pragati Insurance, which was listed with the Dhaka Stock Exchange in 1996, closed at Tk 51.50 yesterday, down 2.7 per cent from the previous trading session.

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