Since 1970, 14th October has been celebrated as the World Standards Day. Around the globe, various activities are chosen by national standards bodies and intergovernmental organizations to commemorate the date. In Bangladesh, two regulatory agencies are working on setting, implementing, and ensuring proper compliance with the standards. These are the Bangladesh Standards and Testing Institution (BSTI) and the Financial Reporting Council (FRC). BSTI's mission is to support the expansion of domestic and international trade and protect the interest of consumers and stakeholders through formulating and implementing standards of products & services and ensuring correct weights and measures. FRC aims to bring public interest entities' financial reporting activities under a well-regulated structure, setting standards for the accounting and auditing profession, properly observing, implementing, supervising, and executing other related activities.
In collaboration with the Accounting & Information System (A&IS) Department of the University of Dhaka, the FRC is celebrating the day with a seminar on 'Financial Reporting Standards- Activities in Bangladesh.' to be held at the Faculty of Business Studies, University of Dhaka.
As the population grows, knowledge expands, and complexity accelerates through innovation, we find ourselves rushing towards a new global village of interconnected systems, processes, and behaviors. As such, it makes common sense that standardization becomes increasingly essential.
If we continue to develop our standards for our little village, we will increase complexity, frustration, cost, and waste, ultimately slowing progress.
Plugs and sockets are an excellent example of where local standards remain in the village/country system. We have plugs and sockets for the UK, America, Asia, Europe, and many other countries have their own or a combination. Any international traveler will understand the frustration of dealing with different plugs, sockets, and devices.
Just imagine how simple it would be if every country used the same plugs and sockets; we could use the same cable to power our mobile phones, computers, printers, electrical appliances, and gadgets. Life would be a bliss. This would save costs, reduce frustration, reduce wastage, and enable more efficient global manufacturing of products. In comparison, credit cards and ATM access are good examples of better international harmonization of digital information, making it easier to access money in multiple countries. This is because the banking system adopted an ISO standard.
Standards is 'something set up and established by an authority as a rule for measuring quantity, weight, extent, value, or quality.' Standards and standardization are not new in the history of mankind. It's not a new topic due to the information age, globalization, or digitization. Standards are used in the creation of the universe. As mentioned in the holy Quran, "1. The Most Beneficent (Allah)! 2. Has taught (you mankind) the Qur'an (by His Mercy). 3. He created man. 4. He taught him eloquent speech. 5. The sun and the moon run on their fixed courses (precisely) calculated with measured out stages for each (for reckoning, etc.)- Surah Ar-Rahman. The whole religion is about standards.
The importance and guidance of obeying standards are also mentioned in the holy Quran right after the above verses. "7. And the heaven He has raised high and set up the Standards. 8. so that you may not transgress (due) Standards. 9. And observe the weight with equity and do not make the Standards deficient. 10. And the earth He has put for the creatures. 11. Therein are fruits and datepalms producing sheathed fruit stalks (enclosing dates). 12. Also, corn, with (its) leaves and stalk for fodder, and sweet-scented plants. 13. Then which of the Blessings of your Lord will you both deny?"- Surah Ar-Rahman
Standards have many benefits and impacts on our day-to-day life. Standards build trust. Standards are the world's common language. Standards level the playing field. Standards ensure positive change, less waste, and better results. Standards increase efficiency, create confidence globally, shape a more sustainable future, and make the world accessible to all. Standards and the citizen: Contributing to society significantly benefits small businesses. International standards connect the globe. Global standards are for the global information society. One standard, one audit, is accepted everywhere. International Standards are for peace and prosperity.
Without accounting standards, businesses could easily skew their financial results to make themselves look more successful. It would also be much harder to compare how different companies are performing.
Here is where International Financial Reporting Standards (IFRS) and generally accepted accounting principles (GAAP) come in. These two sets of guidelines -- one American and one international -- are what most companies follow when preparing financial statements. With these accounting standards in place, people can be sure businesses accurately report their finances and, in turn, make informed decisions about where they invest their money.
International Financial Reporting Standards (IFRS) are the accounting standards set by the International Accounting Standards Board (IASB). It's a set of guidelines followed by 15 of the G20 countries. China, India, and Indonesia do not follow IFRS accounting standards but have similar standards, while Japan allows companies to follow IFRS standards if they choose.
Generally accepted accounting principles (GAAP) are the accounting standard set by the Financial Accounting Standards Board (FASB) for the Securities and Exchange Commission (SEC) in the United States. It's a rule-based system that all domestic and Canadian publicly traded companies must follow when filing financial statements. The purpose of GAAP is to help investors analyze financial data and compare different companies to make informed financial decisions.
IFRS is principle-based. As a result, the theoretical framework and principles of IFRS leave more room for interpretation and sometimes require lengthy disclosures on financial statements. On the other hand, GAAP is rule-based, meaning publicly traded US companies are lawfully required to follow its directives.
GAAP is US-based, while IFRS is used worldwide. The IASB, which sets IFRS, is globally influential; its accounting standards are adapted to accounting rules in countries worldwide. The US, where the Securities and Exchange Commission requires American companies to use GAAP when preparing their financial statements, is the only exception.
IASB and FASB follow a rigorous, transparent, and consultative process to set standards on different topics. Following is the process flow of developing Financial Reporting Standards by IASB-
Bangladesh started its journey to accounting standards in 1995. With support from the World Bank, the Institute of Chartered Accountants of Bangladesh (ICAB) began to adopt accounting standards and issue notifications requiring preparers and auditors under their jurisdiction to prepare financial statements based on those standards.
Subsequently, in September 2015, the Financial Reporting Act was approved by the parliament of Bangladesh, and the Financial Reporting Council (FRC) was established to oversee Bangladesh's financial reporting and auditing profession. With the appointment of its first chairman in 2017, FRC has become operative. FRC has signed several copyright contracts with different International Financial Reporting, Auditing, Code of Ethics, and Valuation standards developers and issuers to adopt and promulgate those standards in Bangladesh. These are different standards for different types of entities for different professional work.
With some exceptions, most standards are adopted and issued word for word as developed by the International issuers. However, due to different country perspectives, public sector entities, NGO accounting standards, and frameworks have been customized in most countries, including Bangladesh. In fact, for NGOs, there is no International Standards issuing body yet. FRC is relentlessly working to bring the updated relevant standards to bring public interest entities' financial reporting activities under a well-regulated structure, set standards for the accounting and auditing profession, and adequately observe, implement, supervise, and execute other related activities. FRC is also working to adopt and issue International Sustainability Standards relating to 'IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures' and 'International Private Equity and Venture Capital Valuation Guidelines' for Startup Valuation purposes.
High-quality, globally accepted Financial Reporting, Valuation, Auditing, and other professional standards will ensure accuracy, transparency, accountability, trust, confidence, and global acceptability in the Financial Report, bringing good governance to the entities and their stakeholders.
Mohammad Anwarul Karim, FCA, CPA(USA), Executive Director- Standard Setting, FRC, Bangladesh, Member- Technical Advisory Group, IFR4NPO, UK