Strong legal framework needed to address financial sector anomaly

Dhaka (Oct 18, 2020): Good corporate governance and strong legal infrastructure are necessary for dealing with anomalies in the financial sector, experts said at a virtual conference on Saturday.

They also pointed out that in the context of increasing digitalisation, compliance with accounting standards is essential for fair and transparent financial reporting.

The virtual conference, titled “Audit Regulatory Reforms in Bangladesh - The Way Forward,” was organised by the Institute of Chartered Accountants of Bangladesh (ICAB).

Mohammad Muslim Chowdhury, the Comptroller and Auditor General of Bangladesh, addressed the conference as the chief guest while Financial Reporting Council (FRC) Chairman Professor Dr Md Hamid Ullah Bhuiyan spoke as the special guest, with former ICAB president Muhammed Farhad Hussain in the chair.

Muslim Chowdhury said there are many allegations that audit firms make substandard financial reports, but attention should be paid as to why that happens.

"If good governance is not ensured in the corporate sector, how will the audit firms prepare good audit reports for companies having weak audit committees and independent directors?" he questioned.

Ownership concentration and family dominance in the corporate sector is one of the biggest constraints to ensuring corporate governance in Bangladesh, he said, adding that FRC could take regulatory initiatives to appoint independent directors based on academic background and expertise; those who could really perform their duties independently.

Referring to low auditing fees, he said, “Audit firms can't survive by only providing auditing services. Firms should be allowed to provide non-auditing services through necessary regulatory reform.”

In his keynote paper, Dr Javed Siddiqui, associate professor at Alliance Manchester Business School in UK, said the FRC can set minimum fees for quality audit as ours are one of the lowest in the world.

He also suggested delegating some responsibilities, such as setting standards, quality control of audit firms, and disciplinary actions, to ICAB, under close monitoring of the FRC.

Stressing on developing a Code of Corporate Governance for non-listed Public Interest Entities (PIEs), Siddiqui said it is required to ensure compliance with the agreed minimum audit fee threshold, depending on the size or turnover of PIEs. He said the quality of financial reports would not improve if corporate governance remained the same.

ICAB President Muhammad Farooq delivered the welcome speech.