The chief of the country's capital market regulatory body said on Wednesday auditors would be made accountable apart from ensuring improvement in governance in the listed companies for the sake of producing sound and transparent financial reports.
"We'll address problems and grievances of auditors and also ensure their accountability," Bangladesh Securities and Exchange Commission Chairman Dr M Khairul Hossain said while speaking at a seminar on "Financial Statements Analysis and Detection of Fraud."
Bangladesh Academy for Securities Markets (BASM) organised the seminar at the BSEC office in the city.
He said auditors would have to be held responsible for any shortcoming in financial reports. Chartered accountant students prepare the reports and the auditors only sign them. That would not happen anymore.
"We'll make sure panel of auditors work as per their responsibility," he said.
He said if a financial statement does not reflect the real situation of a company that statement will not work.
He said the investors, the businesses and, thus, the economy would suffer in the event of faulty financial reports.
The BSEC chief said financial reports in developed markets reflect the companies' real financial health, performance and future expectations.
"But in our country it is the reverse in most cases," he said.
"We have analysed the debacle in the stock market in 2010-11 and found that one of the main reasons was that the real financial health of companies was not reflected in audited financial reports," he disclosed.
He said the BSEC brought about reforms after 2011. Two of the biggest reforms were forming one special tribunal and framing the financial reporting act.
He said he would sit with the auditors and other market stakeholders including financial reporting council to ensure transparent financial reports so that good companies enter the market in future.
He said if auditors prepare accurate financial reports, the new IPOs (initial public offerings) will fare well.
He said listed companies are fleecing investors by doctoring financial information.
But, he said, the BSEC is very strict and, at the same time, very helpless as the regulator is understaffed.
"We have our office manned by 160 people including only 84 officers here," he said.
He said the responsibility of the BSEC is much greater than that of Bangladesh Bank.
Executive Director of BSEC Md Mahbubul Alam said both listed companies and those aspiring to be listed can manipulate the market.
He urged journalists to be more watchful about the reports.
Director of BSEC Mohammad Rezaul Karim presented a paper on the topic.
"Disclosing irregularities during audit by auditors is a very rare incident," he said.
He also said there are many kinds of frauds that could creep into financial statements and the journalists should be watchful about that.
Executive Director of Financial Reporting Council (FRC) Mohiuddin Ahmed said people do not have trust in financial statements and this situation has not been created in a day.
He said auditors and company owners prepare financial reports in connivance with each other.
The companies hire only those auditors who have good relationship with the company people," he said.
He said Bangladesh is a small country and there are only 159 firms and 370 chartered accountants.
So, "everyone knows everyone," he said.
When the issue of appointing an audit firm comes up, the company chairman asks "Will he listen to us"?
"Will-he-listen-to-us is the first of the criteria for appointing an auditor here," he said.
He also said the government is planning to get involved in the process of appointment of an auditor through an amendment to the companies act.
Mr Ahmed said the government must provide protection to the auditors.
He said they work for the chairman of a company while doing auditing. If they are not protected, they will not disclose irregularities.
"Accountants do the key manipulation in the financial reports on the instruction of company chairman, so if we want to stop it, we have to address it," he said.
Assistant Professor of Finance Department at Dhaka University Mohammad Salahuddin Chowdhury said if BSEC can not address the issue of corporate governance, they can not prevent irregularities in financial statements.
"Only law is not enough to check the irregularities," he said.
Central Depository Bangladesh Limited (CDBL) Managing Director Shuvra Kanti Choudhury said prevention is better than cure.
"We should stress sound and transparent financial reports rather than damage control," he said.
He said frauds start from a company's top level, "we have to start from there".
Replying to a question, Mr Choudhury said Grameenphone should keep a provision in financial statements against the audit claim of BTRC (Bangladesh Telecommunication Regulatory Commission).
Director of BSEC Kamrul Alam Khan and Capital Market Journalist Forum (CMJF) president Hasan Imam Rubel, among others, spoke at the seminar.
Executive Director of BSEC Farhad Ahmed moderated the programme.
