Auditor Shiraz Khan Basak under fresh probe over ACME IPO irregularities

The stock market watchdog has launched an inquiry into the auditing firm, Shiraz Khan Basak & Co., to determine its culpability following the detection of grave irregularities in the pre-IPO financial statements of ACME Pesticides, which were audited by the firm.

A primary investigation conducted during the interim government found that the financial statements had been fabricated to make the company appear eligible for its 2021 listing.

ACME Pesticides, which manufactures and markets agricultural chemicals (pesticides, fungicides and herbicides), fertilisers, and household consumer products such as mosquito coils and cleaners, had inflated its balance sheet by including unpaid pre-IPO placement shares, according to a press release issued by the market regulator at the end of last year.

The scam resembles the financial fraud case involving Ring Shine Textile Ltd, which was listed in 2019. The pre-IPO financial statements of Ring Shine Textile were also audited by Shiraz Khan Basak & Co., along with three other firms.

The initial probe report of the securities regulator on ACME Pesticides cited top management executives - including its chairman, managing director, other directors, company secretary and CFO - as being connected to decisions that allowed the issuance of the unpaid shares.

The Bangladesh Securities and Exchange Commission (BSEC) forwarded the report to the Anti-Corruption Commission (ACC) for action against those involved in the illegal acts.

It also decided to penalise the pre-IPO auditor, Shiraz Khan Basak & Co., for failing to portray the true financial health of the company and to cancel the licence of the issue manager, Shahjalal Equity Management, for failing to ensure due diligence.

The latest investigation aims to determine the extent to which the auditor was responsible for the wrongdoing prior to the listing of ACME Pesticides.

In an order issued on February 19, the regulator said the decision to probe the firm was taken after it found indications that the company's financial statements did not present a "true and fair view" of its financial position.

The Commission observed that certain financial disclosures and audit certifications during the IPO period may have contained inconsistencies, prompting the need for a formal probe.

The inquiry will examine whether there were violations of securities laws, financial reporting standards and corporate governance requirements.

The BSEC has constituted a three-member committee to carry out the investigation and directed it to submit its findings within 60 working days.

The investigation is expected to determine accountability, including whether there was any negligence, misrepresentation or non-compliance by the company's auditors during the IPO and subsequent reporting periods.

Earlier, the BSEC had summoned Shiraz Khan Basak & Co., along with several other audit firms, for failing to report serious financial irregularities and violations in the audited financial statements of listed companies.

The BSEC's probe found that audit reports signed by Shiraz Khan Basak & Co. did not disclose irregularities and violations of securities laws in the financial statements of Ring Shine Textile Ltd.

The market watchdog then issued a show-cause notice to the firm, asking why it should not be "barred from auditing listed companies and capital market intermediaries for five years."

The FE could not ascertain the follow-up action on the show-cause notice.

In the case of ACME Pesticides, which operates a factory in Mymensingh, one-third of the IPO funds raised remained unutilised long after the deadline. Financial utilisation reports also show inconsistencies.

farhan.fardaus@gmail.com