Poor monitoring widens flawed audit reports

FE Report | Published: February 26, 2015 00:00:00 | Updated: November 30, 2026 06:01:00

Slack and ineffective monitoring by regulators, mainly due to lack of skilled manpower and resources, has widened the scope of flawed financial reports.
A World Bank study titled 'Bangladesh: Report on the Observance of Standards and Codes- Accounting and Auditing (ROSC- A&A)' has identified this shortcomings.
According to the report, though the Registrar of Joint Stock Companies and Firms (RJSC) is the only umbrella regulator, to which all public and private companies are accountable, it is facing a lack of skilled manpower and other resources to enforce auditing standards and monitor them.
"Effectiveness of the RJSC's monitoring team is one of the major challenges in ensuring the broader level application of International Financial Reporting Standards (IFRS) that is essential to ensuring improved accountability and transparency so as to create better investment climate," it noted.
On the other hand, the securities regulator BSEC performs some monitoring of financial reporting by listed companies with limited effectiveness and 'is severely constrained by limited resources with necessary skills and experience.'
The WB report also found unresolved 76 per cent complaints, lodged against the stock brokers in 2012-13. The rates were 67 per cent and 28 per cent for the fiscal years 2011-12 and 2009-10, a turbulent year for the stock market, respectively.
The WB study also said the IDRA monitoring of insurance companies' compliance with financial reporting and auditing standards was found to be 'of limited effectiveness due to capacity constraints.'
Currently, the insurance regulator did not effectively enforce compliance with financial reporting standards for the 77 companies (including two public) in the insurance sector, the report claimed.
The report found the IDRA 'slow' in issuing regulations on compliance issues. It resulted, in some cases, in companies continuing to prepare their financial statements under the Insurance Act 1938 that does not mandate the application of Bangladesh Financial Reporting Standards (BFRS).
The state-owned enterprise (SOE) wing under the Finance Division's monitoring cell, which oversees the public sector non-financial entities, and the Banks and Financial Institutions Division, which watches over the financial institutions, also did not monitor the quality of financial reporting in view of the compliance with financial reporting standards, it said.
It happened in the absence of a defined financial reporting framework requiring compliance with the IFRS or International Public Sector Accounting Standards (IPSAS) and the department's lack of skills and manpower.
Most of the public entities, including 45 non-financial SoEs, 35 corporations, 112 autonomous bodies and 66 institutions, academy or subordinate offices, are audited by CA firms.
It also found activities of the central bank's Banking Inspection Departments limited to enlistment of auditors, receiving audit reports and review of auditors' reports.
"The inspection departments of Bangladesh Bank lack professional expertise to review the compliance with BAS or BFRS by banks and financial institutions (FIs)."
In the absence of a financial reporting framework and lack of specificity in the Bank Companies Act in this regard, there was no regulatory requirement to comply with BAS or BFRS for these banks and FIs except the listed ones, it said.
The auditors, in some cases, were also failing to detect any failure in meeting basic disclosure requirements.
A good number of medium and small audit firms were not following proper audit methodologies and documentation standards.
Even in some cases, the format and language of audit reports revealed that either the concerned auditors did not have the sufficient level of competence to do the audit or they grossly neglected their duty.
The study was conducted by the WB team led by Suraiya Zannath, senior financial management specialist, Global Governance Office of Director (GGODR), from March 1 to June 30, 2014.
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