BSEC bans 3 firms over Ring Shine audits

The securities regulator has taken punitive action against three audit firms and their three partners over serious irregularities in the auditing of Ring Shine Textiles Limited.

The Bangladesh Securities and Exchange Commission (BSEC) has imposed a three-year ban on the audit firms Ata Khan & Co., Mahfel Huq & Co., and Shiraz Khan Basak & Co.

In addition, a five-year ban has been imposed on Maqbul Ahmed, partner of Ata Khan & Co.; Md. Abdus Sattar, partner of Mahfel Huq & Co.; and Ramendra Nath Basak, partner of Shiraz Khan Basak & Co. The regulator found that the audited financial statements did not present a true and fair view of the company's financial position.

Ata Khan & Co. and its partner were penalised for auditing Ring Shine Textiles' 2019 financial statements. Mahfel Huq & Co. and its partner faced similar action for the 2018 accounts, while Shiraz Khan Basak & Co. and its partner were held responsible for the 2020 financial statements.

An enquiry committee formed by the BSEC identified material irregularities and anomalies in key financial components, including assets, liabilities, profits, and cash flow statements.

The commission found that the audit firms had violated International Financial Reporting Standards (IFRS) and International Accounting Standards (IAS). It also noted that the audits were not conducted in compliance with the Securities and Exchange Rules, 2020, raising serious concerns about the reliability and quality of disclosures. 

The commission held both the audit firms and their partners responsible for non-compliance with applicable auditing and regulatory standards. The decision was taken at a commission meeting on March 31 and took immediate effect.

The regulator has communicated the decision to relevant institutions, including Bangladesh Bank and the Institute of Chartered Accountants of Bangladesh (ICAB).

BSEC's earlier investigations concluded that Ring Shine Textiles was involved in Tk 275 crore in placement share manipulation, where shares were issued without actual cash backing, indicating coordinated financial fraud.

The company's IPO prospectus was also found to contain false and fabricated information. As a result, the regulator imposed travel bans on at least 13 individuals, including sponsors, directors, and senior officials, and referred the matter to the Anti-Corruption Commission (ACC) for further investigation.

Investigators further found that a network of company insiders and external parties manipulated financial statements and share allocations, enabling the company to inflate its capital base from around Tk 10 crore to over Tk 285 crore without genuine investment.

As part of enforcement actions, multiple audit firms-including those recently penalised-were found to have certified false financial statements.

Market analysts say the Ring Shine case has become a benchmark example of systemic failure, where weaknesses in IPO vetting, auditing, and regulatory enforcement converged, ultimately undermining investor confidence in the capital market.

In a separate action, the regulator also sanctioned Mahfel Huq & Co. and its engagement partner Md. Abu Kaiser for their role in auditing another listed company, Fareast Life Insurance Company Limited, citing similar failures in ensuring compliance with auditing standards and financial disclosure requirements.

The firm was found to have failed to obtain sufficient and appropriate audit evidence, yet still issued an audit opinion, breaching IFRS and IAS requirements.

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