Upholding reputation of financial reporting

A World Bank  Group report recently said that the establishment of a new independent oversight authority for accountants and auditors in Bangladesh may be too advanced a step considering the relative size of the corporate sector and profession in more developed countries. The  World Bank (WB) report titled Bangladesh: Report on the Observance of Standards and Codes (ROSC)-Accounting and Auditing further said : "There is strong view among the stakeholders that establishment of a separate regulatory body such as a financial reporting council (FRC) may not necessarily bring the desired result should the performance of other regulatory bodies remain in their current state."
Considering the WB's latest comment, it is obvious that the proposed Financial Reporting Act (FRA) will be a blow to the existence of the profession of chartered accountants, mandated by the law of the country.
 Moreover, the proposed Act carries some 'ambiguity and dualism' against the country's existing laws. Some recommendations of the parliamentary standing committee on the finance ministry over the FRA has frustrated the financial sector experts as those, if executed, would confuse the stakeholders and degrade the reputation of financial reporting both at home and abroad.
The report that the parliamentary standing committee on the finance ministry earlier placed at the House contained some misleading suggestions which deviated from those approved by the cabinet committee.
As per the amendment proposed to clause 2(12) of draft FRA 2015 by the JS body, 'Registration,' would mean any accountant registered as a member of a professional accountancy institution. This is not justified at all. As per global practice, the management of a company prepares and presents financial statements which are audited by practising CAs. There is no precedence of conducting cost and management audit by cost and management accountants.
Demanding that such provisions should not be included in the FRA, many experts believe financial external audit by a chartered accountant (CA) is globally accepted and it is mandatory for a report to be audited by a CA. But cost and management audit is not mandatory; it is optional and not a part of financial reporting. In fact, cost and management audit has no relevance to financial reporting.
In line with global practice, there is no role and involvement of cost and management accountants in the execution of the law to create FRC and such changes in the original draft approved by the cabinet committee is not only unnecessary but also contradictoryin nature.
According to section 40(3)(KA) of the proposed law, the condition of issuing the certificate to an auditor from the ICAB (Institute of Chartered Accountants of Bangladesh) is necessary, but according to section 2(10) audit firm and section 2(11), there is no condition for getting membership from the ICAB. The definitions are not clear and thus contradictory with section 40.
Bangladesh's economy and ground reality have not reached up to the mark as that of the USA or the UK and there is no such law enacted in any neighbouring country.
The Institute of Chartered Accountants of Bangladesh (ICAB) has already urged the concerned authorities to enact the law in a way so that it does not hamper the purpose of the law the government has initiated to ensure more transparency in financial reporting.
The FRA is a much-hyped issue that came into focus several times. There is no FRA in the SAARC countries, but considering more transparency and accountability in the financial sector, its enactment is to be appreciated by the stakeholders. The proposed law should be based on our country's perspective. It should not create any contradiction with our existing relevant laws. There should not be any provision in the FRA that is not supported by international rules and norms. It is mentionable that there is nothing like FRA in SAARC countries, and in India's Company Act, there is a provision that if required, FRA can be formed. There is even no provision for imprisonment of CAs in India for professional misconduct;  they have, instead, a provision for financial penalty. Even in case of serious non-compliance, there is a provision for debarring practising license as providing professional audit and accountancy services is civil in nature and non-compliance of that should not be a criminal offence. But in the proposed FRA, there is a  provision for 5 years' imprisonment. This imprisonment threat for civil offence will ultimately damage the profession. Because of such provisions, no quality chartered accountants will be attracted to do audit services and even no brilliant students will be attracted to study CA in future.
As per the FRA, four working groups have been suggested for some responsible tasks. One is Standard Setting, which the ICAB is doing successfully and no question was raised about it. Quality Assurance Practice Review is another group and the ICAB has also the same active department. Other two elements are Enforcement and Monitoring and the ICAB is conducting both the tasks. In case of monitoring, other regulatory bodies like the Bangladesh Securities and Exchange Commission have same responsibilities.
It is not that the areas that the FRA will oversee are not done by the existing regulatory bodies at this moment in Bangladesh. If such tasks were done through strengthening the existing bodies, then it would be much efficient, economic and effective than through the proposed FRA. The FRA is basically a prescription for development of capital market situation and if we mean cross-border development like if someone invests in India under a joint venture (JV) with a company, then we will look into its financial health and performance in a financial statement signed by a chartered accountant.  No one will sign a JV with a company whose financial statement is signed by a cost management accountant as internationally it is accepted that the report will be signed by a CA. If a report is signed by a cost accountant, it will not be acceptable as per international practice and no one will rely on it. One will rather want the report to be examined by a CA.
A CA also reviews overall performance of the organisation including the cost accountant's report. So in auditors' report, there is no reservation. The CA profession carries a long, enduring and sustainable glory to help develop the country's financial sector but a sudden move from the government without any consultation with the ICAB will not only stymie the national development; rather it will strangle the accounting profession.
Despite significant progress and advancement in the field of professional education of CAs, international recognition from ICAEW, CPA Ireland, International Federation of Accountants (IFAC), reward from the South Asian Federation of Accountants (SAFA) and beyond, some quarters for their own interests are trying to ignore the role of the ICAB by advocating for FRA/FRC.
It will be more functional if the government strengthens the ICAB through creating skilled accounting professionals and maintain professional and independent ethics instead of creating another parallel body. We are not against the FRA if the government wants to enact the law considering the national interest; we believe the proposed FRA should be revised as per the suggestions made by the professionals under the umbrella of the ICAB. It would bring more result. Keeping the ICAB aside, the FRA will be seen as an episode that may remind us of the fragility of our financial governance for a prolonged period.
We cannot change the past, but we can strive to shape a more cooperative future. As a Russian proverb puts it, "Forget the past and lose an eye, dwell on the past and lose both the eyes."
The writer is an analyst
on financial issues.
 [email protected]