Need for quality auditing
Wednesday, 4 January 2012
The Securities and Exchange Commission (SEC) is reported to have taken a move to amend the Rule concerned to conduct 'special' audit of financial statements of the listed companies at its own cost, if necessary. The securities regulator has solicited public opinion on the amendment. In fact, the sub-rule 3 of the Rule 12 of the existing Securities and Exchange Rules, 1987, makes it binding on the part of listed company to bear the fee and all other expenses in relation to 'special' audit by the SEC. Yet the regulator has opted for an amendment for reasons best known to it.
The most plausible reason for bearing the cost of 'special' audit by the SEC itself could be that its earlier orders asking a number of listed companies to carry out such audits were not carried out. However, instances of not complying with the SEC's directives by companies and their directors are many. The unfortunate part of such development is that the regulator could not or did not take lawful actions against rouge companies and their directors. Such inaction, deliberate or otherwise, has emboldened some listed companies to indulge in alleged malpractices of all sorts, including submission of faulty or window-dressed financial statements.
The credibility of firms of chartered accountants, rightly or wrongly, is not that strong in Bangladesh as a section of them are found to be amenable to the demand from rogue sponsor-directors of the listed companies for preparing financial statements as per the requirements of the latter. The issue of quality auditing has come up for discussion at the national level on several occasions in recent years. But actions from agencies concerned have not been worth mentioning, despite the fact that the SEC, under sub-Rule 3B, inserted in 2001 into the Rule 12 of the SEC Rules, is empowered to bar an unscrupulous firm from auditing the financial statements of listed companies for a period not exceeding five years.
However, before taking a tough action, it has been made mandatory for the regulator to refer the issue to the Institute of Chartered Accountants, Bangladesh (ICAB) with a request to take disciplinary action against the audit firm which is found, on prima facie grounds, to be guilty of preparing faulty or cooked-up financial statements. In the event of ICAB's failure to take action against its member/s in question, the SEC is free to take punitive measures in accordance with the rule concerned. But neither the SEC nor the ICAB has been serious enough to weed out unscrupulous audit firms that have been depriving the government of its due amount of tax revenue and serving the purpose of dishonest sponsor-directors of the listed companies.
Yet the move of the SEC to carry out 'special' audit of financial statements, where it deems necessary, at its own cost deserves appreciation. But what will be more relevant here is the initiation of lawful punitive actions against the rogue sponsors-directors of the listed companies and the auditors, if they are suspected on substantive grounds to have doctored their financial statements. The ICAB, of late, has been trying to raise the ethical and professional standard of its members. However, constitution of an independent, strong and powerful watchdog to oversee the activities might help raise the level of confidence in the audited financial statements of companies, listed or unlisted.
The most plausible reason for bearing the cost of 'special' audit by the SEC itself could be that its earlier orders asking a number of listed companies to carry out such audits were not carried out. However, instances of not complying with the SEC's directives by companies and their directors are many. The unfortunate part of such development is that the regulator could not or did not take lawful actions against rouge companies and their directors. Such inaction, deliberate or otherwise, has emboldened some listed companies to indulge in alleged malpractices of all sorts, including submission of faulty or window-dressed financial statements.
The credibility of firms of chartered accountants, rightly or wrongly, is not that strong in Bangladesh as a section of them are found to be amenable to the demand from rogue sponsor-directors of the listed companies for preparing financial statements as per the requirements of the latter. The issue of quality auditing has come up for discussion at the national level on several occasions in recent years. But actions from agencies concerned have not been worth mentioning, despite the fact that the SEC, under sub-Rule 3B, inserted in 2001 into the Rule 12 of the SEC Rules, is empowered to bar an unscrupulous firm from auditing the financial statements of listed companies for a period not exceeding five years.
However, before taking a tough action, it has been made mandatory for the regulator to refer the issue to the Institute of Chartered Accountants, Bangladesh (ICAB) with a request to take disciplinary action against the audit firm which is found, on prima facie grounds, to be guilty of preparing faulty or cooked-up financial statements. In the event of ICAB's failure to take action against its member/s in question, the SEC is free to take punitive measures in accordance with the rule concerned. But neither the SEC nor the ICAB has been serious enough to weed out unscrupulous audit firms that have been depriving the government of its due amount of tax revenue and serving the purpose of dishonest sponsor-directors of the listed companies.
Yet the move of the SEC to carry out 'special' audit of financial statements, where it deems necessary, at its own cost deserves appreciation. But what will be more relevant here is the initiation of lawful punitive actions against the rogue sponsors-directors of the listed companies and the auditors, if they are suspected on substantive grounds to have doctored their financial statements. The ICAB, of late, has been trying to raise the ethical and professional standard of its members. However, constitution of an independent, strong and powerful watchdog to oversee the activities might help raise the level of confidence in the audited financial statements of companies, listed or unlisted.