Financial reporting: CAs versus CMAs

The proposed Financial Reporting Act (FRA) is intended to ensure transparency of financial reporting of publicly-listed entities and also to regulate the process of financial reporting. Who will regulate what? The answer lies in the definitions of the terms: (i) the financial reporting and (ii) auditor. Financial reporting means reporting on financial statements. The Section 2(3) of the proposed Financial Reporting Act, 2015 states: "Financial statements mean balance sheets, income statement or profit and loss accounts, statement of changes in equity, cash flow statement, notes and statements and explanatory material thereon, either interim or final." Financial statements have been defined the way it is globally accepted in accordance with the Internal Financial Reporting Standards (IFRS). The Section 212 of the Companies Act has defined a Chartered Accountant (CA) as an auditor. As per this section, the auditor means a firm of Chartered Accountant(s), who audits financial statements as defined above. The Section 2(19) of the proposed FRA also states that the field of financial audit is the arena of CAs.
So, financial reporting means the reporting on financial statements audited by a firm of CAs. So, it can be very easily surmised that the financial audit and the auditor thereof, i.e., CAs, will be regulated by the Financial Reporting Council (FRC) in accordance with the FRA. Here is no scope to include any other part of accounting or any optional function of it done by others. These types of assignments other than financial audit (annual audit of financial statements) do not fall under the legal framework and international standards of financial reporting for publicly-listed entities. So, there arises a big question over inclusion of Cost and Management Accountants (CMAs) in the FRA and the FRC as their jobs do not fall under financial audit.
In addition to that, Section 220 of the Companies Act, 1994 has made cost audit optional. It may be done or not. It depends on the decision of the board or management of an entity. This type of optional assignment is not related to transparency of any financial audit. So, whenever it comes to transparency of financial reporting for publicly-listed entity, it means the transparency of audited financial statements annually done by CAs. Financial reporting does not cover the statement on costs or any statement falling under the management accounting or cost audit. So, inclusion of cost and management accounting in the FRA is not relevant, when it comes to financial reporting transparency of publicly-listed entities.
Section 2(18) of the proposed FRA includes CMAs as professional accountants. It is not consistent with any other provision of the Companies Act, 1994 and this act as well. Section 2(19) of the act states: The field of CMAs is cost audit which is optional and does not fall under financial audit and financial reporting under the jurisdiction of FRA and FRC… Except Section 2(18) about inclusion of CMAs in the definition, Section 2(19) states cost audit as the field of CMAs and Section 5(1) (Jha) on inclusion of the president of the Institute of Cost and Management Accountants of Bangladesh  (ICMAB) as a member of FRC, nothing is provided in the proposed act relating to the activities of CMAs and cost accounting. Nothing of the proposed act deals with any statement on cost, cost audit or management accounting.
Legally cost audit is a separate and optional assignment depending on the contract. An aggrieved party or regulator can take punitive action over any breach of such a contract under the contract act or the Companies Act 1994 or securities laws. If those laws do not cover it, the laws may be updated or amended to involve all professionals in preparing accounts, conducting optional cost audit or rendering management accounting services. From this legal point of view and in view of international practices, inclusion of CMAs in the proposed FRA is beyond the objectives and purposes of the proposed FRA and FRC.
Does any provision of FRA provide for an overview of the accounting job done by any person? Does any role of CMAs relate to financial reporting and annual reports under the Section 184 of the Companies Act, 1994? Is any firm of CMAs enlisted with any regulator like Bangladesh Bank (BB), Bangladesh Securities and Exchange Commission (BSEC) or Insurance Development and Regulatory Authority (IDRA) for cost audit? Do the auditing standards cover the standards of cost audit specially? The answers to all the questions are: NO! Then why do we link CMAs to financial reporting. Will CMAs come under the proposed FRA and FRC? If one reviews financial reporting acts in different countries, one will find that they control only the statutory audit and hence CAs. The Malaysian Financial Reporting Act, 1997 (amended up to  January 01, 2006) includes the president or council members of the Institute of Accountants (Chartered Accountants) and none is from CMAs. The Mauritius Financial Reporting Act, 2004 also includes the president and elected members of the Institute of Professional Accountants.
We may review the structure of FRC of the two most influential economies-the USA and the UK. The FRC is termed a Public Company Oversight Board under The Sarbanes-Oxley Act 2002 in the USA, which comprises five members (appointees) with maximum two CPAs. No CMA is included. The structure of the UK Financial Reporting Council is different from others. The FRC board consists of (i) Codes and Standard Committee, (ii) Executive Committee, and (iii) Conduct Committee. Each committee excepting the executive committee has council or sub-committee. Such committees are formed with professional and business experts with a view to ensuring high quality corporate governance systems and financial reporting and actuarial practice, where financial reporting includes the financial statements audited by chartered accountants. It does not include the management accounts and audit thereof as it is not financial reporting.
Financial accounting reports present results and position of a business for the government, creditors, investors and external parties, whereas cost accounting is an internal reporting system for an organisation's own management for decision making. The two are completely separate issues because of two basic objectives. Financial reporting is the output of financial audit and only such audit of any publicly-listed entity is high on the agenda of FRA and FRC. Cost audit is an optional audit, not mandatory, and no regulators enlist any CMA to conduct any type of audit to protect the public interest. So, CMAs are not a party to the FRA and FRC and we are just fooling ourselves by inserting CMAs in the FRA, though they have no job under it.
Dipok Kumar Roy, ACA is an
 associate member of ICAB..
 roy_dipok@yahoo.com