FRA: How will it taste?

Shamsul Huq Zahid | Published: September 09, 2015 00:00:00 | Updated: November 30, 2024 06:01:00

The Financial Reporting Act has come into being, finally.
However, the adoption of this important piece of legislation by the national parliament last Sunday has stirred up both ecstasy and disappointment in two opposing camps.
Opposition and debates were aplenty over the enactment of the law that aims at ensuring transparency in financials and accountability on the part of audit firms.
At one point of time it did appear that adoption of the law that provides for the establishment of a regulatory body in areas of financial reporting would be delayed further.
But thanks to the doggedness of the incumbent finance minister who has seen the bill through despite opposition to, and controversies over, particular section of the law that provides recognition to the members of the Institute of Cost and Management Accountants of Bangladesh (ICMAB) as professional accountants. The Institute of Chartered Accountants, Bangladesh (ICAB) has been persistently opposing such recognition.
However, the area of operation of the ICAB members will be financial audit while ICMAB members will be doing only the cost and management auditing.
It is the 12-member Financial Reporting Council (FRC) that would call the shot in audit works. It will formulate and implement a national accounting standard in line with the similar standards recognised internationally. Â
The council will also fix charges and fees for accounting and auditing services. Besides, without being enlisted with the FRC no audit firm would be allowed to be appointed as auditors of any organisation involved in activities of public interest.
The council has been empowered to impose fine and award prison sentence if any auditor is found guilty of wrongdoing or violating any provision of the FRA or rules, guidelines or standards to be prepared under it.Â Â Â
A good number of developed and developing countries do have identical laws and councils or authorities to regulate the activities of the audit firms and ensure accountability and transparency in financial reporting by companies, both listed and non-listed.
Questions about the quality of the audited financials, particularly those of the listed companies, started coming up for long. But the rise in the number of listed companies and the irregularities detected in financial reporting by a section of them in recent years created concern among the investors and relevant others about the audit firms' professional integrity and accountability. Â
Even the securities regulator on occasions vented their frustration over the quality of works by a section of audit firms and lack of support from the quarters concerned to check those.
At one stage, the government started thinking quite loudly to put in place a legal framework and a regulator that would help ensure accounting standard and oversee the activities of the audit firms. However, it dragged its feet for quite sometime, primarily due to opposition from the ICAB on the issue of providing recognition to the cost accountants as professional accountants and others.
The ICAB has been regulating the activities of its members. With the FRA in place, the ICAB would be relieved of much of its self-regulatory responsibilities.
But the question is: will the formation of the FRA bring an end to the preparation of doctored financial statements by a section of unscrupulous listed companies? Highly unlikely.
Bangladesh has so many regulatory institutions and bodies. Had they performed even half of what they are required to do under their respective laws and statutes, the situation would have been altogether different.
To ensure better outcome from the regulatory entities, fulfilment of two basic requirements is essential. Firstly, competent people having high degree of integrity and honesty in the relevant fields need to be inducted in the management and operations of these bodies and secondly, these people must be allowed to work independently and without any interference from outside.
But in Bangladesh, fulfilling the conditions, as noted above, is really difficult. The powers that be are always interested to have their 'own' men -- it matters little whether they are competent or not -- at every important place.
The council is expected to be formed soon. The stakeholders will surely follow intensely its entire formation process. The selection of people for the FRA actually would indicate the government's desire. If right people are chosen, then one can expect good results from the FRA. The proof of the pudding, to be honest, lies in its eating.
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