Planned reporting body to be toothless, says ICAB head

The Institute of Chartered Accountants of Bangladesh (ICAB) has expressed its doubt over the effective functioning of the proposed Financial Reporting Council (FRC).
The FRC will be a body, under the proposed Financial Reporting Act (FRA), for overseeing the financial reporting activities. Currently, the ICAB functions as a self-regulatory body of auditors.
 "The FRA will fail to yield any better results as it does not have any provision for the professional improvements and corporate discipline," ICAB president Masih Malik Chowdhury told the FE in recent interview.
"Unless there is corporate discipline, transparency of the financial reporting will not be ensured," Mr Chowdhury said.
The proposed FRA bill has recently been sent back to the parliamentary standing committee on finance ministry from the Jatiya Sangsad (JS) for further scrutiny.
The ICAB has opposed such a separate law since the government moved to enact a law for a parallel body.
Instead, it recommended bringing structural changes to the ICAB to turn it into a stronger regulatory body, better able to oversee the sector.
He said, "Enacting the law in the form as it is now is like trying to tighten the mouth of a bottle keeping thousands of leaks on its body."
"If we review the Sarbanes-Oxley Act, 2002 of the USA, we see a lot of provisions for auditors and corporate, which ensure effective professional services and corporate discipline," Mr Chowdhury said.
Though the issue of making FRA came to light after a World Bank report recommended in 2003, the lender's follow-up report in 2014 recommended strengthening other regulatory bodies too to deal with the audited financial statements to get expected outcome.
"So, there is no obligation from the World Bank to constitute FRC at this moment," he said.
"We were bewildered seeing the JS body's recommendations that termed cost and management accountants (CMAs) 'professional accountants' alongside the CAs," he said.
There is no similar law in the world that defines CMAs as professional accountants, he said, adding the Indian draft National Financial Reporting Authority Rules, 2013, under The Companies Act, 2013, defined 'Professional' as a Chartered Accountant registered under Chartered Accountant Act, 1949 of India.
"Our rationale for excluding CMAs from the FRA is strong, because members of the ICMAB are not acquainted with the practical experience of auditing," he noted.
As per IFAC rules, only CAs are qualified after studying long academic courses preceded by 36 months of intensive training in practice of chartered accountancy, the ICAB president said.
The CMA Ordinance 1977 allows them only to perform in cost and management accounts; there is no scope for them to work at cost and management audit, he said.  
 "We expect that there would have no such provision at the FRA that is not supported by the international rules and norms," he said.
Regarding the provision of five-year imprisonment in the FRA, Mr Chowdhury said as per India's Company Act, if required they can form FRA.  But there is even no imprisonment provision for professional misconduct by CAs, instead they have financial penalty.
Even in case of serious non-compliance, there is a provision for barring CAs from practicing, he said, adding: "But in the proposed FRA, provision for a five-year imprisonment is the deviation of global best practices."
He feared that because of such absurd provision, no quality chartered accountants will be interested to do audit services and even no brilliant student will feel encouraged to study CA in future.
Another 'bias' in the proposal of the JS body was seen in terminating the membership from the Council for any offence or physical or mental incapability is also against the basic principle of law, he said.
Referring to another provision, the president said though some of the council membership including the ICAB president can be terminated while that of a few other organisations including the head of Institute of Cost and Management Accountant of Bangladesh will remain out of its purview.
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