University of Dhaka

Department of Accounting & Information Systems.

An assignment on
Financial Reporting Regulation in Bangladesh: Evolution, Current Status,
Challenges and Prospects.
Course: Advanced Financial Accounting (6101)
Submitted to:
Mr. Mahadi Hasan
Assistant Professor.
Department of Accounting & IS.
University of Dhaka.
Submitted by:
Izaz Ahmed
ID: 25140
MBA Roll: 1173
Section: B
Date of Submission
28.10.2024
Table of Contents
Abstract............................................................................................................................................4

Introduction......................................................................................................................................5

The Background of Financial Reporting Regulations in Bangladesh.............................................5

International Financial Reporting Standards (IFRS)...................................................................5

Securities and Exchange Rules 1987...........................................................................................5

The Bank Companies Act 1991...................................................................................................5

The Companies Act 1994.............................................................................................................6

Financial Reporting Act 2015......................................................................................................6

The Corporate Governance Code 2018.......................................................................................6

The Current Status of Financial Reporting Regulation in Bangladesh............................................8

Securities and Exchange Rules 1987...........................................................................................8

The Bank Companies Act 1991...................................................................................................8

The Companies Act 1994.............................................................................................................9

Financial Reporting Council......................................................................................................10

Corporate Governance Code 2018:...........................................................................................12

Challenges of the Financial Reporting Regulation in Bangladesh:...............................................14

The Bank Companies Act 1991.................................................................................................14

The Companies Act 1994...........................................................................................................14

The Code of Corporate Governance 2018.................................................................................15

Prospects to Improve Financial Reporting Environment in Bangladesh:......................................16

Conclusions....................................................................................................................................16

References......................................................................................................................................17
Abstract
This report expresses a comprehensive overview of the financial reporting regulation in
Bangladesh. It highlights specific provisions regarding the Companies Act 1994, Bank
Companies Act 1991, Securities and Exchange Rules 1987, and Corporate Governance Code
2018, that ensure financial transparency, accountability, and compliance. International Financial
Reporting appeared essential for the listed companies in Bangladesh. Despite a structured
regulatory system, Bangladesh faces challenges such as weak enforcement, outdated laws,
political influences, and a lack of skilled resources. These obstacles hinder the effectiveness of
financial regulations and contribute to issues like loan defaults and insufficient corporate
governance. The text identifies prospects for regulatory reform, including updating financial
penalties, improving governance structures, adopting international accounting standards for the
public sector, and enhancing ICT resources within regulatory bodies. By addressing these issues,
Bangladesh could strengthen its financial reporting environment, aligning it more closely with
global standards and fostering greater investor confidence and economic stability.
Introduction
Financial Regulations are defined as laws and rules that govern the activities of financial
institutions (Kumar, 2014). Financial regulations determine the overall financial environment of
an entity. Financial regulations act as control systems that guarantee secured participation of the
stakeholders. According to Kumar (2014), financial regulations are considered as preventive
measures to deter market failure. As Keynesian theory of economics stated, the markets are not
efficient. So, government needs to intervene in the market to optimize the social welfare.

The Background of Financial Reporting Regulations in Bangladesh

There are handful number of laws and regulations that shape the financial reporting environment
in Bangladesh.

International Financial Reporting Standards (IFRS)

IFRS are a set of accounting rules for the financial statements of public companies that are
intended to make them consistent, transparent, and easily comparable around the world. IFRS
works on harmonization of international accounting systems to promote homogeneity. IFRS
ensures that financial statements become relevant and faithfully represented. In addition to that,
they need to be comparable, verifiable, timely and understandable to be useful to the intended
users. Securities and Exchange Rules 1987 require business entities in Bangladesh to follow
IFRS.

Securities and Exchange Rules 1987

The Finance Division of the Ministry of Finance introduced Securities and Exchange Rules in
September 1987. With the help of this rules, the authority tried to ensure proper disclosure
practices and regulatory compliance of the companies traded in stock exchanges in Bangladesh.
The Rules provide the requirement to follow IFRS by the business entities within Bangladesh.

The Bank Companies Act 1991

The scope of The Bank Companies Act 1991 includes financial institutions that are private
limited, public limited and state-owned banks. Enforced on 14 February 1991, this act outlines
from the process of incorporation to the way of conducting business of a bank company. An
amendment of this Act took place in 2018, where it highlighted that the number of family
members in board of directors was revised from two to four. This Act was further amended on 21
June 2023. According to Ahmed (2023), Section 15AA of The Bank Companies Act 1991 stated
that the amendment introduced 12-year tenure for the bank directors. In addition to that, the
directors can retain their directorship for six years consecutively.

The Companies Act 1994

Gazi et al. (2013) argued that the development of the Companies Act, 1994 is greatly influenced
by the British laws and regulations such as the Indian Companies Act 1857. This Act was also
replaced and amended by different Acts in 1882, 1913, 1936. The Indian Companies Act 1882
required companies to prepare balance sheet and it also added audit requirement of the balance
sheets. It determined the manner of financial reporting regulations in Bangladesh.

Financial Reporting Act 2015

On 9 June 2008, it was mentioned in the Parliament that necessary steps were taken to introduce
Financial Reporting Ordinance to establish a Council that would oversee the financial reporting
activities of Public Interest Entities (PIEs) and corporate sector entities. The Financial Reporting
Ordinance was published in official Gazette on 30 December 2008. The Financial Reporting Act
was officially published in gazette on 09 September 2015. The Financial Reporting Council was
legally established on 23 April 2016.

The Corporate Governance Code 2018

Islam et al. (2022) described the development process of The Code of Corporate Governance in
Bangladesh. The authors stated Bangladesh Enterprise Institute (BEI) introduced “The Code of
Corporate Governance for Bangladesh” in April 2004. At this stage, the compliance with the
Code was voluntary. Responding to this Code, the Institute of Chartered Accountants of
Bangladesh issued “Draft Code of Corporate Governance-Bangladesh” in November 2004.

Donor pressure led Bangladesh Securities and Exchange Commission (BSEC) to implementing
“Notification on Corporate Governance Guidelines, 2006” (NCGG). The concerned entities in
Bangladesh were not ready for the mandatory adoption of the NCGG. That is why BSEC made
in voluntary to comply with the NCGG.
On 3 July 2012, BSEC made the NCGG compliance mandatory for the concerned entities to
strengthen the regulatory environment. Changes are introduced in board composition through the
NCGG, 2012.

BSEC officially published the Corporate Governance Code 2018 (CGC) on 10 July 2018. This
Code is the final revision of the previous rules and regulations. The CGC was introduced the way
it became appropriate for existing domestic and international circumstances. This Code was
introduced to strengthen the internal control of the entities that act acted as deterrent to
governance failure.
The Current Status of Financial Reporting Regulation in
Bangladesh

Securities and Exchange Rules 1987

It was introduced to outline the eligibility criteria to become and remain as a member of a stock
exchange according to Rule 3, the manner of conducting business the member shall follow
according to Rule 4 , the requirement of maintaining books of audited account and other
documents by both the stock exchange and the members according to Rules 5, 7 and 8.

Section 12 of the Rule requires the issuer of listed company to include balance sheet, profit and
loss account and cash flow statement, and notes to the financial statements. In addition to that,
the Securities and Exchange Commission ensures reliability of the financial statements by
requiring the financial statements to be audited by a partnership firm of chartered accountants y
shall be audited by a partnership firm of chartered accountants within the meaning of Bangladesh
Chartered Accountants Order,1973 (P. O. 2 of 1973).

Provided that, notwithstanding anything contained in this subrule, such financial statements may
also be audited 4 [in accordance with Schedule-2] by an auditor appointed by the Commission,
whenever such audit is deemed by the Commission necessary in the public interest and the
auditor so appointed shall furnish his report to the Commission in such form and within such
time as the Commission may specify.

Section 13 requires a listed entity to submit periodical report within one month of close of the
first half-year.

The Bank Companies Act 1991

According to Section 38(1) of this Act, every concerned entity shall prepare balance sheet and
income statement at the expiration of each financial year in a certain form.

Section 38(2) of this Act stated that the balance sheet and income statement of the entity shall be

o signed by its managing director and directors if entity is situated in Bangladesh.

 o Signed by its manager or agent of the principal officer if the entity is situated outside
Bangladesh.

Section 39 states that the income statement or the profit and loss account and financial report of
the company shall be audited by the appropriate auditors mentioned in the law. Moreover, the
auditors shall have the power to get any document required to conduct audit. The auditors also
shall have the power to impose penalty on any non-compliance.

According to Section 40 of the Act, the previously stated reports will be published in a
prescribed manner and three copies of each shall be furnished to the Bangladesh Bank within
three months of the close of the period to which those accounts, balance sheets and reports relate.

Section 42 requires very banking company incorporated outside Bangladesh:

o shall display a copy of the last balance sheet and profit and loss account prepared under
section 38 at any day proceeding the first Monday of February of the year which follows
the year that balance sheet and account relates to in a conspicuous place in its principal
office and every branch office in Bangladesh and shall keep it uninterruptedly displayed
until its subsequent balance sheet and account are displayed in the same manner;
o every such banking company shall in addition display in like manner copies of its
complete audited balance sheet and profit and loss account relating to its business as soon
as they are available and shall keep the copies uninterruptedly displayed until such
subsequent balance sheet and account are displayed.

The Companies Act 1994

The Companies Act 1994 outlined sections to regulate financial reporting environment and to
ensure proper compliance.

Section 181(1) requires every concerned entity to maintain books relating to:

o all sums received and expended

o all the sales and purchases of goods and services

o all the assets and liabilities of the concerned entity.

o all the direct and indirect costs of producing goods and services.
Section 183(1) and 183(2) require the directors of an entity to present balance sheet and income
statement to the entity’s general shareholder in annual general meeting at least once in a calendar
year within a period of nine months (twelve months for companies having interests outside
Bangladesh) after closing the accounts.

Section 183(3) requires the balance sheet and the income statement of the concerned entity shall
be audited by the independent external auditors.

Section 183(6) of the Act requires the concerned entities to maintain a copy of balance sheet and
income statement those were audited earlier with a copy of directors’ report.

Section 184(1) of this Act requires a directors’ report shall be attached to every balance sheet
with respect to:

o the state of affairs of the company

o recommendation of transfer to a reserve fund.

o recommended dividends

o any material changes and affecting the financial position of the company occurring
between the date of the balance sheet and the date of the report.

Section 210, 211, 212, 213, 214, 216 and 217 of this Act highlight the roles, responsibilities and
power of the auditors to audit the financial statement of an entity.

Financial Reporting Council

Financial Reporting Council defines the levels of Financial Reporting Framework for Statutory
Public Authorities (SPAs) in five levels.

Level 1: SPAs those have revenue more than BDT 100 crore shall adopt International Public
Sector Accounting Standards accounting. This level requires the concerned entities to furnish:

1. Statement of Financial Position

2. Statement of Profit & Loss and Other Comprehensive Income
3. Statement of Changes in Equity
 4. Statement of Cash Flows
5. Notes to the Financial Statements
6. Statement of Budget vs Actual

Level 2: SPAs those have revenue less than or equal to BDT 100 crore shall adopt simplified
International Public Sector Accounting Standards accounting. This level requires the concerned
entities to furnish:

1. Statement of Financial Positions

2. Statement of Comprehensive Income
3. Statement of Changes in Funds
4. Statement of Cash Flow
5. Notes to the Financial Statements
6. Statement of Budget vs Actual

Level 3: SPAs those have revenue less than or equal to BDT 50 crore shall adopt accrual
accounting. In this level, every concerned entity shall produce:

1. Balance Sheet
2. Income Statement
3. Cash Flow Statement
4. Notes to the Financial Statements
5. Statement of Budget vs Actual

Level 4: SPAs those have revenue less than or equal to BDT 30 crore or gross assets more than
BDT 10 crore shall adopt modified accrual accounting. In this level, every concerned entity shall
produce:

1. Balance Sheet
2. Income Statement
3. Statement of Receipts and Payments
4. Notes to the Financial Statements
5. Statement of Budget vs Actual
Level 5: SPAs those have revenue less than or equal to BDT 5 crore or gross assets not more than
BDT 10 crore shall adopt cash basis accounting. In this level, every concerned entity shall
produce:

1. Statement of Receipts and Payments

2. Notes to the Statement of Receipts and Payments
3. Statement of Budget vs Actual
4. Fixed Assets Schedule from Fixed Assets Register.

WHY FIVE (5) LEVELS

We only have Cash-based IPSAS or Accrual-based full IPSAS. If we aim to take some 230

SPAs from cash to accrual basis full IPSAS (of 1,900 pages), it will be a chaotic situation and

ultimately a failed project that wastes public money and time. Because those 230 SPAs don’t
have

sufficient and efficient accounting people under the currently approved organogram of the
entities.

Considering all the reality and the aim to move to full accrual with all standards, FRC had no

choice but to design the framework into five tiers.

Corporate Governance Code 2018: Corporate Governance Code 2018 tries to ensure proper
accountability and transparency in governance structure of a company. Section 1(5) of the Code
requires every listed company to furnish the Director’s report to the shareholder in a particular
form containing particular information.

Section 4(6) requires that the Audit Committee of the company shall report on its activities to the
Board of Directors about any conflict of interests, any suspected fraud or material misstatement,
any suspected infringement of law etc.

Section 4(7) requires the Audit Committee to report to the general shareholders.

Section 9(1) of the Code requires that the issuer company shall obtain a certificate from a
practicing Professional Accountant or Secretary (Chartered Accountant or Cost and Management
Accountant or Chartered Secretary) other than its statutory auditors or audit firm on yearly basis
regarding compliance of conditions of Corporate Governance Code of the Commission and such
certificate shall be disclosed in the Annual Report.
Challenges of the Financial Reporting Regulation in Bangladesh:
Bangladesh is one of the developing countries whose institutions are not reasonably strong.
Weak capital market, regulatory capture, outdated laws, poor governance structure, family
dominance in the board of directors, political influence in the market are the characteristics of
economic environments of Bangladesh.

The laws should be updated to agree with the present socioeconomic situation in Bangladesh to
ensure equitable treatment of every stakeholder.

The Bank Companies Act 1991

One of the main challenges in banking sector is loan-defaulting. According to Hasan (2024), the
defaulted loans may hit 145633 crore taka by the end of December 2024. Section 138 of the
Negotiable Instrument Act 1881 states that a defaulter shall be punished either with
imprisonment for a year or financial penalty up to three times the claimed amount. But the Bank
Companies Act 1991 does not specify any strict and meaningful measure to be taken to deter
loan-defaulting. This weakness of the Act is manipulated by many willful defaulter.

The Companies Act 1994

Section 66 (2) states that if a company fails to hold minutes to form part of memorandum, the
company will be fined not exceeding BDT 100 for each copy of non-compliance. The amount is
negligible.

Section 75(3) states that if any director fails to provide a notice as required by 75(1), he shall be
liable to a fine not exceeding five thousand taka.

Section 77(4) expresses if a company carries on business without complying with the
requirements of section 77, it shall be liable to a fine not exceeding two hundred taka for every
day during which it so carries on business.

Those examples above evidence that the amount of fine charged by the law has negligible
impacts on the company. This may fail to ensure proper law and order. To get rid of this kind of
situations, certain provisions of the law shall be revised.
The Code of Corporate Governance 2018
As per section 9 of the Rule a company must obtain a certificate from prescribed source to
ensure check and balances. But the reality is that biases and conflicts of interests hinder this
provision to be maintained properly. The Rule should take proper steps to ensure objective
treatment and compliance of section 9 of the Rule.

Bangladesh tries to slowly adopt IPSAS accounting for government sector. But it lacks sufficient
human, technical, and financial resources to implement this. Moreover, political dominance over
financial sector deters the economic systems to function properly that bring optimum outcomes.
Prospects to Improve Financial Reporting Environment in
Bangladesh:
The effectiveness and efficiency of regulatory system of a country determine the level of
compliance. The existing laws, rules and regulations have room to improve. The improvement is
necessary to cope with financial environments of present world.

Relevant sections of the Bank Companies Act 1991 shall be revised to safeguard financial
commitments.

Moreover, the stated provision for non-compliance of the Companies Act 1994 shall be revised
so that the penalty becomes relevant and material based on present circumstances. The
Companies Act 1994 can include the definition of “Financial Report” considering the Financial
Reporting Act 2015. The Act can also incorporate the definitions of “Inspector” and
“Liquidator”. The high capital requirement of taka 25 Lakhs can also be neutralized for one-
person-company. The ICT resources of Registered Joint Stock Company (RJSC) can also be
increased.

Islam et al. (2022) argued that the chairman of Nomination and Remuneration Committee shall
be of independent board member. The authors also suggested the increase in the number of
independent members in the board and gender diversity in the board can improve the
functionality of governance mechanisms.

Conclusions
In conclusion, the financial reporting regulatory framework in Bangladesh comprises several
laws and codes designed to ensure transparency, accountability, and compliance across sectors.
However, significant challenges persist due to outdated provisions, weak enforcement, political
influence, and limited resources, which impact the effectiveness of these regulations. The
financial reporting environment could be improved by revising penalty structures, enhancing
governance frameworks, and modernizing regulations to address the country’s socio-economic
realities. Furthermore, strengthening the capabilities of regulatory bodies and adopting
international standards, such as IPSAS for government reporting, would help align Bangladesh’s
financial reporting with global norms. With these improvements, Bangladesh could enhance
regulatory compliance, reduce systemic risks, and foster a more stable and transparent financial
environment.

References
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act-2023-3436716

Gazi, M. A. I., Rahman, M. S., & Md Halimuzzaman. (2013). A Review of Corporate Financial
Reporting Regulations in Bangladesh. 10(5), 1557–1564.
https://www.researchgate.net/publication/355163161_A_Review_of_Corporate_Financial_Repor
ting_Regulations_in_Bangladesh

Hasan, M. M. (2024). The Daily Star. The Daily Star.

https://www.thedailystar.net/business/bangladesh-national-budget-fy2024-25/news/bad-loans-hit-
historic-high-3628901

Islam, M. T., Rahman, M., & Saha, S. (2022). Reforms of Corporate Governance Codes in
Bangladesh: Developments and Future Directions. Journal of Risk and Financial Management,
15(8), 347. https://doi.org/10.3390/jrfm15080347

Kumar, R. (2014). Financial Regulation - an overview | ScienceDirect Topics.

Www.sciencedirect.com. https://www.sciencedirect.com/topics/economics-econometrics-and-
finance/financial-regulation