Quarterly-based disclosures

The stock market has been playing an important role in the industrialisation process of the country for the last few decades. It has been creating an equity pool as well both for institutional and individual investors.
The stock market, which remained a small club before the 1990s, suddenly became a big name to all segments of small and big investors during the mid-1990s. Investors had easy opportunities to make money through investing in some listed companies only. There were hardly long-time investors in the market though ideally the stock market does not offer any sustainable and enduring return for short-term investors.
Our stock market, like any other markets of the world, has always been affected by certain malpractices and misdeeds, overlooked or neglected by the regulators. For example, the nagging failure of DVP (delivery versus payment) settlement caused the debacle in late 1996 and margin loan facilities created the same bubble in late 2010. In both cases, the regulators failed to handle the situation properly bringing the investors' confidence to the lowest level.
Recently, the malpractice centring the disclosure of quarterly earning per share and subsequent loan availability has affected the market to a large extent. For example, share prices of two listed companies rose and dipped abnormally immediately after dissemination of their quarterly EPS (earning per share) when the investors availed the opportunity of getting loan margin facility up to 40 PE (price earning).
This scribe likes to cite an example here. A textile company in its un-audited consolidated financial statement for the 3rd quarter ending March 31, 2013 mentioned: "We had shown EPS at Tk 0.50 in our half-yearly report as on December 31, 2012 which was not correct because we wrongly charged deferred tax liabilities up to June 30, 2012 in comprehensive income statement instead of statement of changes in equity."
"If the deferred tax liability up to June 30, 2012 had been charged to statement of changes in equity, the EPS as on December 31, 2012 would have stood at Tk.0.90," the company further mentioned. The deferred tax liabilities up to June 30, 2012 stood at Tk 277.70 million.
Due to such 'accounting exercises', the price of the textile company dipped to Tk 21.6 per share in the middle of the period between May and June of 2013. It rose as much as to Tk 31.6 per share in the middle of the July-August period, 2013 riding on 'rosy picture of financial strength' of the company.
It has thus become a big question as to how investors will keep their confidence on the disclosed accounts of the listed companies.
It is a very pertinent question as to why an investor will lose his/her hard-earned money due to an 'error', committed by the company management. How will an investor be convinced whether this error was not committed 'intentionally'?
In fact, growth of our stock market is seriously hampered due to such reasons. Genuine investors will keep themselves aloof from the stock market if such situations remain unchanged.
Such practices also make the investors rumour-based as their confidence gets eroded from disclosure-based or fundamental-based market strategy. In fact, rumour-based market created one of the biggest problems for our stock market in 1996 and 2010.
As the regulator, the Bangladesh Securities and Exchange Commission (BSEC) should pay proper attention to such anomalies. The BSEC should make the half-yearly and quarterly reports of the listed companies mandatory like the annual ones. At present, only annual reports are audited and the quarterly and half-yearly reports are not.
In developed markets of the world, all financial statements (quarterly, half-yearly and yearly) of listed companies must be audited by recognised chartered accountants.
In case of Bangladesh, all stakeholders should come forward to ensure true and fair representation of the listed companies in their financial statements. The members of the accounting profession should have core competency to scrutinise corruption in financial statements and disclosures. Without core competency, one cannot function properly.
As per the Bangladesh Constitution, only the Institute of Chartered Accountants of Bangladesh (ICAB) has the statutory power to prepare and implement the accounting and auditing standard according to the International Financial Reporting Standard (IFRS) and the International Standards of Auditing (ISA).
At present, 359 ICAB members out of 1416 are engaged in audit practices and the rest 1057 are associated with different business entities/companies. Besides, after completing their course of qualifying part, more than 15 thousand students are engaged with different organisations in the country and abroad. The number of students is increasing due to international approval of the ICAB's training and examinations.
It is also to be mentioned that Bangladesh achieved the highest number of Best Published Accounts and Reports Awards among the SAARC countries for preparing excellent financial statements in 2012. The ICAB is thus playing a vital role in scrutinising the reports. This is encouraging the corporate entities to sustain.  
The ICAB has a good number of specialised accounting professionals. To bring professional excellence, it took part in a specialised training programme. The ICAB and the International Finance Corporation (IFC) jointly organised recently a roundtable on effective implementation of corporate governance in Bangladesh.
The writer is chairman of Nepal-Bangladesh Bank Ltd
and former chairman of the IFIC Bank Ltd.
[email protected]