The Financial Express

International Accounting Day

Role of accounting in economic growth

| Updated: November 20, 2020 22:16:34

Role of accounting in economic growth

"Once upon a Time, there was no Time (watch) but there was Accounting". When a professor stated this statement in accounting class of our undergraduate program in University of Dhaka to make us understand history of accounting, we were confused but felt thrilled. In fact, the history of accounting is thousand years old which started even before the language was invented and people used to maintain the record of their belongings. The historical analysis indicates the evidence of recording the Income of Temples in Ancient Mesopotamia in 4000B.C. However, the new era of accounting started with the publication of "Summa de Arithmetica, Geometria, Proportioni et Proportionalità" which denotes "Everything about Arithmetic, Geometry, Ratio and Proportion" published on November 10, 1494 in Venice. The author of the book was an Italian mathematician and philosopher namely Luca Bartolomeo de Paciolo who laid the foundation of modern accounting recording with the conceptualization of "Double Entry System" in this book. Therefore, the date of "November 10" has been being observed as International Accounting Day by professional accountants across the world since 1972. The underlying purpose of observing the International Accounting Day is to promote accounting profession and its implication to build accountable-society. On the occasion of celebrating International Accounting Day 2020, this paper aims to present the current state of accounting environment in Bangladesh and the role of professional accountants to achieve sustainable economic growth of Bangladesh.

Accounting Environment in Bangladesh

Accounting environment comprises institutional environment, legal systems, accounting conventions, professional accounting bodies, accounting education and professional accountants which affect the accounting and auditing systems of an economy. The quality of recording business transactions and credibility of financial reporting in an economy significantly depends on soundness of its accounting environment. Though Bangladesh is an independent country, its accounting environment still inherits a British legal structure and is also largely influenced by the British accounting practices. For example, after being independent from Pakistan in 1971, Bangladesh adopted the Companies Act 1913 (amended later as Company Act 1994) which predominantly reflects the British legal provisions. In the post-independent period, Institute of Chartered Accountants of Bangladesh (ICAB) was established under the Bangladesh Chartered Accountants Order, 1973 for the purpose of educating and regulating statutory financial auditing in Bangladesh. Afterwards,  Institute of Cost and Management Accountants of Bangladesh (ICMAB), second management accounting professional body of the country, was established in 1977 under the 'Cost and Management Accounting Ordinance, 1977' (which is replaced by The Cost and Management Accountants Act 2018) to regulate and expedite cost and management auditing and accounting practices in Bangladesh. Since then, these two legitimate professional accounting bodies have been playing their role as autonomous bodies under the ministry of commerce, Government of Bangladesh, to produce highly-skilled accounting professionals and maintain high quality in professional accounting practices in Bangladesh. However, two big stock market scams and some large loan scams in last three decades created a tonne of criticisms about the effective role of professional accountants to ensure credible financial reports for decision makers. Therefore, Bangladesh government has passed the Financial Reporting Act 2015 and formed the Financial Reporting Council (FRC) as the independent regulatory body to adopt international accounting standards and monitor the overall quality of accounting practices in Bangladesh.

The quality of financial reporting depends not only on the legal and regulatory environment but also on the competent human resources with sufficient accounting skills and knowledge. Quality of accounting education is the key to producing competent accountants to prepare and disseminate accounting information to decision makers. In Bangladesh, different universities and two national professional institutions such as ICMAB and ICAB impart accounting education to meet the need of high-skilled human resources required for credible accounting practices. Though universities provide terminal degrees in accounting, professional accounting institutions offer certified professional degrees as well as continuous learning opportunities under Continuous Professional Development (CPD) programmes for their professional members. The candidates who can pass the professional examination and complete the industrial training are awarded as professional "Cost and Management Accountants (CMAs)" and "Chartered Accountants (CAs)" by ICMAB and ICAB respectively as per their legitimate authority in Bangladesh.

Professional Accountant and Economic Growth in Bangladesh

Frequently, some questions roaming around us: who are professional accountants and what do they do or how are they distinctive to perform their role in the industry?

According to International Federation of Accountants (IFAC), "a professional accountant is a person who has expertise in the field of accountancy, achieved through formal education and practical experience, and who demonstrates and maintains competence, complies with a code of ethics, is held to a high professional standard, and, is subject to enforcement by a professional accountancy organisation or other regulatory mechanism". That means professional accountants not only are well educated and trained but also work maintaining a professional and ethical code of conduct.  Though professional accountants mainly play their roles as auditors and/or accounting & finance executives, many of them also work as business executives and strategists, public sector financial management consultants and policy makers. Regardless of their positions, their professional and ethical roles are critical to deliver credible financial reporting which is very crucial for ensuring accounting and transparency in both private and public sectors of any economy.

When professional accountants work as auditors, their efficient role in performing auditing and honest opinions on financial reporting are instrumental for users to assess the quality of information for making their prudent decisions. On the other hand, involvement of professional accountants in preparing financial statements creates an added advantage to prepare high quality financial reports due to their sound technical skills. In spite of some crucial limitations of financial statements, most of the decision makers specially investors and fund providers significantly depends on it for making their decisions. Therefore, the credibility of the financial statements is very crucial for attracting investors and ensuring the smoother fund flows in the financial systems which, indeed, is the pre-condition for sustaining economic growth as well.

At present, the economy of Bangladesh is characterized by the consistent economic growth of more than 6.0 per cent for last one and a half decades. In spite of the Covid-19 pandemic, GDP growth rate of Bangladesh in FY2019-20 was 5.24 per cent which is highest among most of the Asian countries as well. However, there are some key challenges for sustaining this economic growth. Funding is one of the key challenges to meet the growth appetite of Bangladesh. As per the Global Infrastructure Hub report, the funding gap in the infrastructure sector will be USD 192 billion by 2040. To meet this huge funding gap, this is essential to attract foreign institutional investors and improve confidence of local investors who mostly prefer credible financial reporting and effective corporate governance. In addition, the waste of resources, corruption, lesser productivity and inefficiency for ensuring value for money are also some critical impediments. Interestingly, the effective and efficient role of professional accountants along with the adequate policy support can be highly instrumental to tackling all of these challenges which, in turn, may support to achieve sustainable economic growth in Bangladesh.

 Syed A. Mamun, PhD, FCMA, is Deputy CEO, Credit Rating Information and Services Limited (CRISL) Email: [email protected]

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