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Insights into the proposed Financial Reporting Act

AF Nesaruddin
GLOBALLY, accounting and auditing is a centuries-old profession, and in Bangladesh, like many other countries, Institute of Chartered Accountants of Bangladesh (ICAB) is playing the key role of regulating the accounting and auditing profession including adopting the international accounting and auditing standards under the regulations and guidance of International Accounting Standard Board (IASB). The ICAB is a body created by virtue of Bangladesh Chartered Accountants Order, 1973 (Presidential Order-2 of 1973). So far the ICAB has been discharging its responsibilities adequately and there is no major complaint as an institute regulating the accountancy profession in Bangladesh. The ICAB and its members of any CA firms are not the same - the ICAB is a regulatory body and never supports the violation of any professional ethics, professional misconduct and negligence of the practising members, if any. Penal actions are taken against the members who violate rules after conducting investigations in accordance with the bylaws of the ICAB.
Because of some corporate failures and scandals, a vested quarter in a planned manner is pointing the finger at the accounting and auditing profession in order to bypass their given roles, responsibilities and failures in their respective fields. Efforts to regulate the professional accountants under a separate law, bypassing the ICAB, will ultimately ruin the profession of accountancy in Bangladesh. On many occasions, the ICAB represented in various forums and submitted many valuable suggestions and recommendations but unfortunately, none of those was considered. There is always scope for improvement and it is a continuous process. Realising the need of the time, the ICAB had submitted a proposal to the concerned ministry about two years ago, but it was never discussed nor did the ministry ever review it for achieving some common goals.
Surprisingly, in Bangladesh, the proposed Financial Reporting Act 2013 (FRA) has not indicated such provision apart from many other issues, some of which are being discussed in the subsequent sections. Regulatory authorities like the ICAB, Bangladesh Securities and Exchange Commission, Bangladesh Bank, and Insurance Development and Regulatory Authority may take disciplinary and penal actions against the persons responsible, either as management or as auditors, for inappropriate and inadequate reporting. Incidentally, to the best of my knowledge, very few legal cases have been initiated in Bangladesh. In such a situation, why was it so necessary to initiate and enact such a contradictory law jeopardising the healthy growth and regulations of accounting and auditing profession in Bangladesh?
However, now let us discuss certain clauses of the proposed FRA and the Financial Reporting Council (FRC) under the proposed FRA.
Professional accounting bodies -- clause 2 (14): The ICAB and the Institute of Cost and Management Accountants of Bangladesh are categorised as same and defined as professional accounting bodies. As far as the audit practice is concerned, there is no match of the CAs with the CMAs or even ACCAs because they do not have practical training for three years or so in CA firms. Practical exposure and experience on audit and accounting are the foundation for audit works; mere academic knowledge and nonpractising accounting experience is not enough.
Composition of FRC - clause 6: The council will be comprised of 1) governor of Bangladesh Bank, 2) chairman of BSEC, 3) chairman of IDRA, 4) chairman of NBR, 5) president of ICAB, 6) president of ICMAB, 7) three representatives from the finance and commerce ministries, 8) two experts in accounting and audit other than members from ICAB and ICMAB, 9) the CEO who will be member secretary to FRC. In fact, allegations against the auditors are generally raised by the central bank, BSEC, IDRA and the National Board of Revenue, and in such a situation, how can they become part of the regulators when they are the complainants. Someone may refer FRC in the UK where these ex-officio members are not in the FRC. Similarly, qualifications of departmental heads are provided in such a way that academicians and generalists can occupy such posts having no sufficient expertise and practical experience in auditing.
Registration of firms - clause 30: It says practising licence of the individual auditors or the firms will be issued, renewed, suspended and cancelled under specific rules to be framed upon being satisfied by the Council. In fact, the ICAB has been issuing the practising licences to its eligible members under the bylaws of the ICAB. Even under FRC in the UK, there is no such provision. Once a practising certificate is issued by the ICAB under certain regulations, why should there be provision for another practising certificate? The ICAB has suspended the membership, withdrawn practising licence, and taken other penal actions against the practising members who were found guilty after proper investigations. Further, the proposed law says it will issue certificates on being satisfied - it is not a matter of satisfaction rather it should be the required qualifications and experience. Adoption of reporting and auditing standards -clause 14: The FRC, not being a professional body, cannot undertake such technical responsibilities. These are highly technical issues and cannot be handled by non-experts body like the proposed FRC. Further, there is no complaint or allegation against the ICAB concerning the adoption of financial reporting and auditing standards in Bangladesh. In view of this, setting the standards should be the sole responsibility of the ICAB when it is already a regulatory body with affiliation with international bodies like International Federation of Accountants (IFAC) and International Accounting Standard Board (IASB).
Offence and penalty - chapter 59: The Act has kept a provision of imprisonment for five years or Tk 1 lakh fine or both, but it has not mentioned where the punishments will be applicable. Further, it must be considered that negligence of professional responsibilities and noncompliance of professional ethics are the civil offence and for these lapses, criminal penalty cannot be imposed. If an auditor commits a criminal offence, s/he can be tried as per the existing laws - why is it necessary to enact new law inserting penal actions against auditors? Further, misuse of this clause and harassment of the practising chartered accountants cannot be ruled out.
There are many other mismatches, inappropriate and unjustified clauses in the proposed Act and these need to be revisited for assessing its gravity and consequences.
It is necessary for the concerned authorities to have in-depth knowledge about this profession and review the entire matter before they enact such a law. Without taking chartered accountants into confidence, no law or regulations relating to accounting and auditing profession will achieve its desired goals.
The writer is a practising chartered accountant and a partner of Hoda Vasi Chowdhury & Co, an affiliated firm of Deloitte.