The title of a webinar, 'Financial Reporting Act 2015: Its Implications on the Business Houses' organised by the Dhaka Chamber of Commerce and Industry on Saturday highlights the important role the act can and should play in bringing financial reports in order. With the constitution of a regulator, the Financial Reporting Council (FRC), the legacy of irregular and cooked-up financial statements should now come to an end. Transparency in corporate financial statements is a sine qua non for shoring up business houses' GAP analysis aimed at exploring their potential for a move to the next best or the target stage. In this context the suggestion made by Comptroller and Auditor General of Bangladesh, Mohammad Muslim Chowdhury for bringing corporate management under the purview of the FRC deserves consideration. Putting the blame on incompetent or crafty auditors will not help. Corporate governance is a key to ensuring fair and transparent financial accounts on the basis of which an annual audit report is prepared.
Clearly, good corporate governance cannot be the order of the day without uncompromising attitude of a company management and its active cooperation. If boards or managers of companies are serious about doing away with anomalies not just on papers but on the basis of facts, auditors have little scope to juggle with figures or data and manufacture artificial audit reports. Time and again, participants in the webinar have mentioned the credibility gap in financial reporting here. They also appealed for overcoming this gap in order to attract foreign investment. That the FRC has to make its presence felt is a general consensus. Quite rightly, the auditor general advises the FRC to collaborate with the Bangladesh Bank and regulatory bodies like the Bangladesh Securities and Exchange Commission (BSEC) and the Insurance Regulatory and Development Authority (IRDA).
How to go about the business of persuading all listed companies to fall into rank may indeed prove daunting but in the age of digitisation there is no alternative to elevating the corporate statements to the level of International Financial Reporting Standards (IFRS) in the interest of reaping the benefits of the fourth industrial revolution now in the making. The GAP analysis that emphasises companies' ability to set targets and go higher, moreover, can help establish a transparent corporate regime under which financial crimes like money laundering can be ruled out.
However, on the question of applicability of IFRS to all kinds of enterprises, opinions differed among the speakers. Some are in favour of making IFRS applicable for micro, small and medium enterprises (MSMEs) but others argue that such enterprises should be spared such stringent financial reporting for a certain period. Their financial base is yet to be strong enough to comply with regulations binding big businesses. Indeed, such an approach is pragmatic. These small units cannot compete with large and automated manufacturing giants. Only recently the chief executive officers (CEOs) of Apple, Amazon, Google, Microsoft and Facebook had to appear for US Congress hearing. The charge against them is to stifle competition from smaller companies. This is proof enough that interests of small enterprises need to be safeguarded even if it warrants some regulatory concessions.