Muhammad Aminul Hoque The DSE General Index stood at around 2,900 points in July, 2009. Within 10 months it crossed the 5,600 mark and within the next six more months it rose by another 3,000 points. So there arises a question as to what the regulators were doing at that time and whether they took appropriate measures to cool down the capital market during the unusual boom. However, finally the market began crashing in December 2010. After that, everybody came back to their senses and started finding out the reasons of the crash. There have been a lot of studies done by market analysts and experts. Most of the studies have pointed out the following main reasons of the crash: Providing a large volume of margin loans to investors. changes in face value (stock split) of securities, faulty listing methods, over valuation of initial public offerings (IPOs), insider trading, a wrong monetary policy, and making investment by investors based on rumours, not based on fundamentals etc. But a vested group in a planned way is overlooking the main reasons of the crash and pointing their finger at the auditors saying that auditors produced wrong financial information and as a result the market collapsed. They (vested group) are smartly trying to hide their failure to play their specified roles in their respective fields at that time. Now the questions are: Were the auditors responsible for the wrong financial information produced by the authorities of the listed companies? If yes, to what extent? Did the investors take their investment decisions based on the audited financial statements or just based on rumours? Before holding somebody responsible for something, everyone should know the responsibilities of that person. Everybody should know about the area of work of that man. If the person fails to perform duties, then that person can be held responsible for it. The general people have a perception that auditors produce financial information and they are responsible for the wrong financial information in financial statements. This understanding of general people is not correct, because auditors do not prepare financial statements which contain financial information. Then what does an auditor do? Before we understand the work of an auditor relating to audit of financial statements, we need to know how the financial statements are prepared. It is the responsibility of the management of a company or organisation to prepare financial statements. The ultimate responsibility for financial information of a company lies with the board of directors of that company. And in our country most of the directors of a company are from among the owners of it. The company does their business round the year and keeps records of the business transactions. Based on the records they prepare financial statements. So if financial statements are not prepared properly, the initial responsibility goes to the management (including board of directors) of the company. An auditor's responsibility is to express an opinion stating that these financial statements present a fair view. They do not provide opinions about correctness of these financial statements. And auditors do the audit in accordance with the international standards on auditing as adopted in Bangladesh. As per the standards, the auditors assess the internal control of the companies, do analytical reviews, assess risks and finally check the transactions on a trial basis. As the company makes lots of transactions round the year and audit work is done within a stipulated short period, it is not possible to check all the transactions by auditors. Auditors across the world do the audit in the same fashion. However, due to the inherent nature of the audit work there might be some material misstatements in the financial statements, for which auditors will not be responsible. Auditors can only be made responsible for his/her negligence. If the auditor does not conduct audit in accordance with the standards, then they can be blamed. Most of the auditors in Bangladesh do audit in accordance with the auditing standards. They maintain quality. Chartered accountants of Bangladesh are well recognised in the world. Still there is no denying the fact that some bad auditors are there in our country as in other countries, including the developed ones. These auditors were involved with the over-valuation of IPOs at the time of the capital market's unusual boom. They are the black sheep of the accounting profession. And these black sheep are everywhere, in the communities of doctors, lawyers, engineers etc. But it would not be fair to blame the whole profession for the misdeed of some bad people in the profession. The last capital market crash was the result of the failure of the system. Every organ of the system failed to work properly. But a vested group of people are pointing their finger at auditors only. This is unfortunate. They are doing this to hide their own failures. But if we want an efficient capital market, every organ of the system should be strengthened. Blaming each other will not work. So this blame game should be stopped immediately and we should work for strengthening the concerned agencies and institutions involved with the capital market by spending limited resources, rather than creating more new supervisory authorities. amin@acnabin-bd.com
Capital market debacle and responsibility of auditors
FE Team | Published: October 08, 2013 00:00:00 | Updated: February 01, 2018 00:00:00
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