Mohammad Mufazzal
Rogue auditors engaged in window-dressing balance sheets of listed companies get away with their financial crimes due to the absence of laws and a strong regulator, officials and experts have said.
Under laws, firms must appoint auditors to get annual assessment of their financial health, but very often the book keepers are made to cover up company woes, big debts and inflate or downplay figures to show they are in perfect conditions.
The practice is so widespread that except a few self-compliant firms, there are "gaping holes" in accounts of most of the companies listed with the country's two bourses, an official of the Securities and Exchange Commission said.
"Between July of 2004 to December of 2009, we found 443 cases of suspected audit dress-ups and duly sent notices to the umbrella body of the auditors and the relevant audit firms," he told the FE.
"Unfortunately, the response from the ICAB was extremely poor, which on many occasions simply destroyed our good work. We try to regulate the companies but who'll regulate the rogue auditors?" he said.
Institute of Chartered Account Bangladesh (ICAB) is the quasi regulatory body of the country's more than 1000 plus audit firms. It's not mandated by the laws to regulate the auditors.
Officials say that their attempts to impose strict securities laws and protect investors from non-compliant companies are going down the drains due to one big weak link in company laws: how to bring to book auditors.
SEC officials said there is no direct provision in the securities laws either to penalise audit firms even after they can trace out flaws and window-dressings in audited reports of listed companies.
"We are not able to fine the audit firms directly due to barriers in the securities laws," SEC executive director Farhad Ahmed told the FE.
"Before 2005, most firms didn't maintain standard audit reports. Still now, many firms submit audit reports very casually," Ahmed said.
He said the commission was "frustrated" as it gets the feeling that ICAB was not doing enough to regulate wayward audit firms.
"Except for two or three cases, the ICAB has not disciplined the audit firms found guilty of submitting below-standard reports. There was no satisfactory clarifications from the ICAB or audit firms," he said.
Former finance advisor Mirza AB Azizul Isalm said he too had same frsutrating experience when he was the chairman of the SEC.
"It is difficult for the ICAB to take action against auditors as its councilors are the partners of different audit firms," Mr. Isalm told the FE.
Another ex-SEC chief Faruq Ahmad Siddiqui said due to weak regulation of the ICAB, the audit firms were reluctant to prepare "standard reports" of listed companies.
"During the last BNP government, there was a proposal to set up Financial Reporting Council, whose main task would be to ensure quality accounting practices among the listed firms," he said.
"But the proposed FRC, to be headed by Bangladesh Bank governor, was never approved by the cabinet despite strong backing by the World Bank," he said.
"A regulatory body for the financial sectors is a now a crying need for proper accountability of financial sectors," he said.
During the army-backed caretaker government, the FRC was set up through an ordinance. But the present government has not tabled it in the parliament, killing the council before it could start work.
On Saturday finance minister AMA Muhith, however, said the FRC would be set up very soon. He gave no timeline. Officials, however, are skeptical whether the council would see daylight.
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