1
University of Dhaka
Department of Accounting and Information Systems
EMBA Program
Course name: Corporate Financial Accounting
Course Code: 6101
Assignment On
“Regulatory Framework of Financial
Reporting in Bangladesh”
Submitted to:
Amirus Salat
Professor
Department of Accounting & Information Systems
Faculty of Business Studies
University of Dhaka
Submitted by:
Samantha Rezoana
2nd Batch
ID No. 230102043
Department of Accounting & Information Systems
Faculty of Business Studies
University of Dhaka
Date of Submission:
27th Oct,2023
2
Introduction:
All financial statements are prepared in accordance with a financial reporting
framework. The term financial reporting framework is defined as a set of criteria
used to determine measurement, recognition, presentation, and disclosure of all
material items appearing in the financial statements, the Companies Act of
1994 provides basic requirements for financial reporting by all companies in
Bangladesh. It is silent about either Bangladesh Financial Reporting Standards
(BFRS/BAS) or International Financial Reporting Standards (IASs/IFRSs). In One
Word Regulatory reporting is the process of documenting information about a
company's activities and operations. It includes everything from internal audits to
external reports.
Regulatory frameworks are legal mechanisms that exist on national and international
levels. They can be mandatory and coercive (national laws and regulations,
contractual obligations) or voluntary (integrity pacts, codes of conduct, arms control
agreements). The capital market is regulated by Bangladesh Securities and Exchange
Commission (BSEC). Foreign Exchange Market: Towards liberalization of foreign
exchange transactions, a number of measures were adopted since 1990s.
Description:
Financial reporting the communication of financial information to external and
internal stakeholders is most often achieved by the core financial statements: balance
sheet, income statement and statement of cash flows. But it can also come in many
other forms, depending on the information needs of the reader
Listed companies. The Securities and Exchange Commission of Bangladesh
regulates financial reporting by listed companies. SER 1987 requires
compliance with IASs/IFRSs as adopted in Bangladesh (these are known as
Bangladesh Financial Reporting Standards and include Bangladesh
Accounting Standards).
3
Banks. The Bank Company Act of 1991 mandates reporting formats and
disclosures based on BAS 30, which is similar to IAS 30. The Act is silent
about other BAS/BFRS, and compliance with BAS/BFRS by banks is mixed.
Insurance companies. The Insurance Act 1938 does not mandate compliance
with BAS/BFRS. In practice, insurance companies often do not follow
BAS/BFRS.
Other companies. Neither the law nor the by-laws of the Institute of Chartered
Accountants of Bangladesh mandates compliance with BAS/BFRS by unlisted
companies. Actual compliance varies widely and the ICAB has published
the Bangladesh Financial Reporting Standard for Small and Medium-sized
Entities (BFRS for SMEs) (see below).
Legal Regulatory Frameworks in Bangladesh:
the Securities and Exchange Commission of Bangladesh regulates financial
reporting by listed companies. SER 1987 requires compliance with IASs/IFRSs as
adopted in Bangladesh (these are known as Bangladesh Financial Reporting
Standards and include Bangladesh Accounting Standards). But The IFRS are
deliberate to be used for the preparation of general-purpose financial statements.
However, IFRS-based financial statements could be also required to be prepared for
statutory purposes as well. However, while extending the use of IFRS for such
purposes might appear to be cost-efficient, it may create confusion between reporting
entities and regulators, particularly in situations where the regulator for a given
sector has specific financial reporting requirements that diverge from IFRS. The
legal, Regulatory Framework for Financial Reporting and Audit of Corporate
Entities in Bangladesh are governed by the Companies Act 1994 and Securities
Exchange Rules 1987. The professional responsibilities and conduct of Chartered
Accountants are governed by the Bangladesh Chartered Accountants Bye-laws 1973.
The enforceability status for compliance with the accounting and auditing standards,
adopted by the ICAB, emanates from these sources – being legally compulsory
(force of Law) or professionally obligatory (Bye-law’s requirement). The
Companies Act 1994 does not hold any provision for the compulsory observance of
the adopted IAS in practice. The Chartered Accountants Bye-laws 1973 have also
4
not been amended to entail compulsory compliance of the adopted standards by
ICAB members. Hence in the absence of any broad statutory or professional
requirements, the implementation of the adopted IAS/IFRS is regarded as
pinpointing of good, standard accounting practices. Despite the adoption of IAS by
ICAB, there was no legal enforceability of these standards till the end of 1997.
Implementation of the adopted standards was neither backed by Law nor
professionally obligatory (as in India, Pakistan, Nepal, and Sri Lanka). The SER
1987 (Rule 12, Sub-rules 2&3) were amended in 1997, whereby all listed entities are
required to comply mandatorily with the requirements of all applicable IAS/IFRS,
(as adopted by ICAB), in the preparation and presentation of their Financial
Statement (FS); and all audit practices are required to ensure compliance with
relevant ISA, (as adopted by the ICAB), in the conduct of and reporting on the audit
of FS of listed entities. Hence the IAS and ISA duly adopted by the ICAB as the
BAS and BSA, now have a legally enforceable mandatory implementation status for
all listed companies in Bangladesh. The ICAB Council intends to amend its Bye-
laws in the immediate foreseeable future to mandate “professional enforceability” of
BAS and BSA (adopted IAS and ISA) among its members irrespective of whether
engaged in the profession, service, business, and academia or otherwise. 4.
According to IFRS, financial statements consist of the
► Statement of financial position,
► Statement of comprehensive income,
► Cash flow statement, a statement of changes in equity, and
► Explanatory notes. Note disclosures must include: • Accounting policies followed
• Judgments made by management in applying critical accounting policies • Key
assumptions about the future and other important sources of estimation uncertainty.
5
Conclusion:
The concerned regulators should take proper action to make the adopted accounting
standards as mandatory by incorporating them in all the legislations. Most of the
empirical studies show that the compliance rate of disclosure is very poor in
Bangladesh. The primary legislations should be more comprehensive, considering
different stakeholders’ need for information. Disclosure requirements in the primary
legislation should be consistent with the adopted IAS/IFRS. To avoid repetition
other legislations should refer to the primary one. In order to minimize non-
compliance the regulators should monitor the disclosure levels very strictly. If
companies do not prepare them corporate annual reports in accordance with the
legislations, the authority should take necessary actions against the directors of
respective companies. On the other hand, the companies which are complying with
legislation should be rewarded. Though this paper does not observe the extent of
compliance with disclosure requirements, it may help the users to know the
disclosure requirements of different companies.
The existing draft financial reporting act is not a good structure to give an intended
result which is simply an attempt to tighten the mouth of bottle keeping a lot of leaks
on it. We must ensure proper corporate governance, internal control, reporting
framework etc. to get proper accounting ground. Moreover, the proposed Financial
Reporting Council would be a traditional non- professional council rather than a
result oriented professional institution. These are highly technical issues and cannot
be handled by non-experts’ body like the proposed FRC and we believe that a
political led non-professional council can never bring financial reporting
transparency unless ICAB can work with full independence to enrich the profession.
This paper strongly recommends that the ICAB council may be reformed consisting
of 3(three) Board - (i) Accounting Standard Board (ii) Auditing Standard Board and
(iii) Financial Reports Review Board to ensure compliance of international standard
and effective implementation.
