‘Strong legal framework needed to deal with financial sector anomalies’


Experts at a programme suggested for good corporate governance and strong legal infrastructure to deal with financial sector anomalies in the country.

They also pointed out that in the context of increasing digitalization, compliance to accounting standards is essential for fair and transparent financial reporting.

The suggestions came at a virtual conference on 'Audit Regulatory Reforms in Bangladesh - The Way Forward,' organised by the Institute of Chartered Accountants of Bangladesh (ICAB) on 17 October 2020.

The Comptroller and Auditor General of Bangladesh (CAG) Mohammad Muslim Chowdhury addressed the programme as the chief guest while Financial Reporting Council (FRC) Chairman Professor Dr Md Hamid Ullah Bhuiyan spoke as the special guest, with former ICAB president Muhammed Farhad Hussain in the chair.

ICAB President Muhammad Farooq delivered the welcome speech and associate professor at Alliance Manchester Business School, UK Dr Javed Siddiqui presented the keynote paper. Mohammad Muslim Chowdhury said, there are many allegations that audit firms make substandard financial reports, but attention should be paid as to why that happens.

"If good governance is not ensured in the corporate sector, how will the audit firms prepare good audit reports for companies having weak audit committees and Independent Director of the Board?" he questioned. 

Ownership concentration and family dominance in the corporate sector is one of the biggest constraints to ensuring corporate governance in Bangladesh, he said and added that FRC could take regulatory initiative to appoint independent director in the Board based on his/her academic background and expertise, who could really perform his duties independently.

Chowdhury said, the Financial Reporting Act (FRA) covers the compulsion of public interest entity besides financial courses. Three years after formation, FRC has not been strengthened with its full capacity, he said and suggested that it should play a role of persuasion rather than imposition in the next 4 to 5 years so that FRC could build up its capacity during the time. Referring to low auditing fees, he said, ‘Audit firms can't survive by only providing auditing services. Firms should be allowed to provide non-auditing services through necessary regulatory reform for the sector's better survival’.

Citing example of 'Big Four'; Deloitte, Ernst & Young, KPMG and PricewaterhouseCoopers (PWC) - the CAG said, these companies mainly provide non-auditing services, which attract their clients to take auditing services too from those firms.

Citing one of his studies, the FRC chairman said apart from lower fee rates, audit firms don't have sufficient resources to handle the number of clients for preparing good reports.CA firms should take initiatives to encourage talented youths coming to the profession, who could really provide better services, he said.

In his presentation, Dr Siddiqui said the FRC can set minimum fees for quality audit as the fees are one of the lowest in the world. He also suggested for delegation of some responsibilities like Standard setting, Quality control of audit firmsand Disciplinary actionsto ICAB, under close monitoring of the FRC, for at least four to five years, the time FRC requires to develop its capacity. 

Stressing on developing Code of Corporate Governance for non-listed Public Interest Entities (PIEs), iddiqui said, it is required to ensure compliance with agreed minimum audit fee threshold, depending on size or turnover of PIEs. He said the quality of financial reports will not improve if corporate governance in the country remains the same.

ICAB President Muhammad Farooq FCA said, as a primary regulator of the CA profession, ICAB is continuously paying efforts to ensure the high quality audits by incremental initiatives and innovations. 

The initiative has been taken to develop an integrated audit software for the CA Firms of Bangladesh with a view to capacity building of CA firms, he said adding that using the software, auditors will be able to retrieve the necessary information in a timely and efficient manner.  This will enable the auditor to execute the audit process quickly and effectively to a high standard, which could reduce the risk of non-compliance. 

For improving the quality of financial reporting and audit, he urged all stakeholders like management of a company, audit committee, internal and external auditor and the regulators to perform their due                       responsibilities.