Financial Reporting Bill and Its Effect on Business Entities

The Financial Reporting Bill is expected to come into force around mid-2015 and is currently awaiting the approval of Parliament. Once enacted, it will establish a new regulatory body — the Financial Reporting Council (FRC) — the majority of whose members will be drawn from former government officials. While similar oversight bodies exist around the world, no comparable body currently operates elsewhere in South Asia.

What the Council will do

The Council seeks to regulate and oversee the country’s financial reporting system by regulating statutory auditors — that is, Chartered Accountants. The law provides for serious penalties: up to five years’ imprisonment and a fine of Tk. 100,000, or both, for violating the reporting procedures or for inaccurately certifying financial statements as presenting a true and fair view of the state of affairs of an enterprise. Any person or institution that continues to commit such a violation faces a further penalty of Tk. 5,000 for each day the violation persists.

The expected impact

Establishing the Council is expected to promote high-quality corporate governance and reporting, and thereby to encourage investment. The FRC is likely to raise standards of corporate governance by setting the standards for corporate reporting, audit and actuarial practice, and by monitoring and enforcing accounting and auditing standards. It is also expected to oversee the regulatory activities of the actuarial profession and the professional accountancy bodies, and to operate independent disciplinary arrangements for public-interest cases involving accountants and actuaries.

As a consequence, statutory auditors are likely to act with considerably more caution, leaving little room for error in reporting the state of affairs of the entities they audit.