Audit and assurance quality of majority firms engaged in auditing the financials is not up to the mark, sources said, as questions cropped up over the certification standards of many companies' financial statements.
Experts in this job say that the users of the financial statements, especially banks, capital market and investors at large stand to lose, financially, because of such low-quality auditing.
The findings on the low-quality auditing came out in separate assessments made by the Institute of Chartered Accountants of Bangladesh (ICAB) in two phases during the last five years.
Last year, the Quality Assurance Department (QAD) of the ICAB visited a total of 40 audit firms, including 5 follow-ups. Only three were found fit. Qualities of 37 others (92.5 per cent) were below par.
Among these 37 audit firms, 32 needed urgent improvements and 5 others were found significantly non-compliant and referred to the Investigation and Disciplinary Committee (IDC) for a probe.
In 2013, the first year of the three-year-long second-phase visit, a total of 50 firms, including 9 follow-up ones, were assessed. Of them, 16 were found satisfactory and 34 'not satisfactory'.
Of the unsatisfactory firms, 30 were required urgent improvements and four were significantly non-compliant and referred to the IDC.
Earlier, the QAD, in its first cycle of visits from 2010 to 2012, had assessed almost all the audit firms in the country.
In 2012, around 60 firms were visited by the QAD. Though the number of satisfactory firms was not found immediately, at least 30 were identified unsatisfactory and referred to the IDC.
In 2011, in addition to 17 follow-up firms, 45 others were visited afresh. Only three were in the satisfactory category while 42 found 'not satisfactory'.
Among the unsatisfactory firms, 27 needed urgent quality upgrading and 15 others were significantly non-compliant and referred to the IDC.
In the first year, 2010, the QAD visited 47 audit firms, of which 22 were found satisfactory and rest of the 25 'non satisfactory'. Among the less-qualified firms, 17 required urgent improvement and 8 referred to the IDC.
At present, there are around 170 audit firms in the country.
"The ICAB started the QAD visit into the firms aiming to improve quality and transparency of the CA firms," Mahbub Ahmed Siddique FCA, director (technical) of the ICAB, told the FE.
Mr Siddique, also responsible for the QAD, said that the visits would also facilitate proper disclosure of information in the audit reports and thus strengthen the levels of transparency and accountability in the corporate sector.
When contacted, a senior expert, preferring anonymity, said: "Due to 'fragmented' report of the auditors, having unsatisfactory quality, the banks, the capital market and the investors at large are being badly affected."
The findings indicate that they (auditors) are not doing their job properly and correctly, the expert noted.
The banks sanction credits, especially for the corporate clients, based on their audited reports, certified by the accounting firms. In case of lesser-quality audit reports, they (banks) will have to face adverse effects, he noted.
Terming the findings 'alarming' for the audit and corporate sectors, he also appreciated the ICAB's initiative to evaluate the quality of its own member-firms, which will help improve their standards.
Dr Mahfuzul Hoque, former secretary of the ICAB, said, "The scale of measuring the audit and assurance quality standard was set at quite high level. So, it is not expected that all the firms will do well in such an assessment.
"However, the level of quality, which was found at the assessed CA firms, might have some remote impacts on the corporate sector," said Mr Hoque, also Professor of Accounting and Information Systems at the department at Dhaka University.
The assessment on high scale will eventually facilitate improve quality of the CA firms, he said.
"It is unfair to blame only the chartered accountants (CA) regarding any fault in certification of the financial statements. Because, the management of a company actually prepares the statements that are checked and certified by the auditors," he said.
"But we are commonly accusing only CAs, keeping the management in safe position," Prof Hoque said.
He cited some problems, including low fee, in the accounting profession.
"The CAs also have big responsibility, but it is also hard to ignore the issue that with so much low fees how can they employ manpower and efforts to ensure high quality of their audit works," he said.
He laid stress on having cooperation from the government and other regulatory bodies to take the audit profession's quality to a new high.
Differing with his comment on low fee and effort, a former executive director of the securities regulator told the FE, "Once a professional auditor agrees to work, s/he will have to duly discharge duty no matter whatever the amount of fee is given.
"If the audit firms don't work properly, the regulatory responsibility of ICAB comes forward to take measures to force them to do so," said the official. He also preferred not to be named.
Regarding the QAD findings, he said, "If the audit quality deteriorates, the users of the financial statements, such as the creditors, investors and government, will be seriously affected."
Because, the banks take decision about approval of their loan following the audit reports, he pointed out.
The government also will not get proper tax for cooking the books by the cos.
Opining for categorizing the audit firms into A-grade, B-grade and so on, he said, "It will help the stakeholders take decision relating to the financial statements."
In the ICAB Annual Report 2014, the QAD also expressed its dissatisfaction over the issue, saying: "The overall result of observance is 'not satisfactory' as only few firms got the satisfactory opinion."
It added: "However, need for building awareness regarding maintaining quality in audit and assurance services was communicated properly to the firms."
The department expressed the hope that in the coming days, the visited firms would be more organised, documented and strengthened than before on quality-assurance matters.
In assessing the firms' quality, the QAD took seven major components into consideration. These are leadership, ethical compliance, acceptance of audit, human resource development policy and implementation, engagement performance, external and internal monitoring, and documentation.
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