Punishing unscrupulous accounting professionals

The recent disciplinary actions like debarring an audit firm from auditing listed companies and imposing heavy pecuniary penalties as well as reprimanding two of its member chartered accountants (CAs) are what most people expect from a professional entity like the Institute of Chartered Accountants, Bangladesh (ICAB). The institute had taken similar actions also in the past. But they were few in numbers and the authorities concerned used to be tight-lipped about disciplinary actions. The ICAB has started opening up of late, albeit slowly, maybe, against the backdrop of the government's initiative to enact the Financial Reporting Act (FRA) that aims at ensuring greater transparency and accountability in the matters of financial reporting by the companies and overseeing the activities of audit firms.

As the capital market started expanding in recent years, the number of allegations of doctoring the financials of listed companies continued to pour in from various quarters. Even the securities regulator on a number of occasions detected irregularities in the preparation of financial statements by a number of listed companies with the help of audit firms. Allegations increasingly have gained ground that some unscrupulous audit firms are involved in the foul play. But the ICAB, which acts as the regulator for as many as 1500 member CAs in accordance with the Presidential Order no.2 of 1972, has hardly relished such allegations.

All concerned expect high ethical standards and professional integrity from the auditors since any breach of the same could spell disaster and instances are aplenty on this count. Enron scandal, revealed in 2001, is a case in point. The scandal led to the bankruptcy of Enron Corporation and de facto dissolution of Arthur Anderson, one of the world's largest audit and accountancy partnership. There were at least 10 major corporate scandals between 1998 and 2008 where, some way or the other, improper financials were prepared to hoodwink investors. The collapse of the Enron led to the enactment of the Sarbanes-Oxley act in the USA with tough penal provisions for countering fraudulent financial activities.  The law created a new quasi-public agency, the Public Company Accounting Oversight Board, having the responsibility of overseeing, regulating, inspecting and disciplining accounting firms in their roles as auditors of public companies.

A number of countries, both developed and developing, followed the US footstep and created identical laws providing for the constitution of financial reporting council. The military-backed caretaker government in Bangladesh had also taken initiative to formulate an identical law. But the government elected in December, 2008 prepared a bill of its own. The draft bill was approved by the cabinet in 2013 after a number of amendments. However, the bill, which has triggered rivalries between two sections of accounting professionals, is yet to be passed by parliament. The ICAB is not opposed to penal provisions incorporated in the proposed law against unscrupulous audit firms, but it does not approve of the move to create the financial reporting council which, it fears, will have 'strong' representation of 'non-professionals'.  However, it is the job of the government and others concerned to ensure that the proposed law would facilitate the preparation of authentic and transparent financials and, at the same time, would protect the pride and integrity of all those involved in the accounting profession.