Home ›› 21 Mar 2023 ›› Stock
The Financial Reporting Council (FRC) Chairman Professor Dr Hamid Ullah Bhuiyan said many weak companies in the country tend to go public by concealing their actual financial states.
Most of them usually show three consecutive years of increasing profits before getting listed. But once they get listed, their profits start to fall consistently, he said on Monday.
Speaking at the ‘CMJF Talk’ organised by the Capital Market Journalists Forum (CMJF), Hamid Ullah stated that if banks follow the international financial reporting standards (IFRS) properly, then their assets would erode by 40 per cent due to the carry-over classified loans.
The FRC Chairman also said implementation of IFRS would provide a true picture of banks’ financial health. The Bangladesh Bank, however, has not yet introduced it.
“Many companies witness abnormal rises in their share prices, even though they don’t have no price-sensitive information to justify the hike.”
This trend raises questions about the authenticity of the price-sensitive information that they provide. In order to ensure transparency in the country’s capital market, it is imperative for companies to ensure the accuracy of such information, Hamid Ullah Bhuiyan said.
During the event, the FRC chairman emphasised the need for transparency in the audit of the listed companies’ financial statements. To ensure this, the initiative to register auditors has been taken and will be completed in a few months, he continued.
The FRC will allow only registered auditors to conduct audits for companies listed in the capital market, he further said.
According to him, The FRC already published a gazette notification for enlisting audit firms with the FRC. The auditors have to be enlisted with the FRC within May 30 this year, he said.
“The auditors that will not be enlisted with the FRC are not allowed to audit any company related to public interest including listed companies, banks, financial institutions, insurance companies,” he said.
“A separate panel will be made from among the listed auditors to audit companies listed in banks and capital markets.” He also announced that companies with revenues of Tk 50 crore or more would be considered public interest companies.
Currently, there are around 3,400 such institutions in the country. In addition, the Financial Reporting Council of Bangladesh also oversees the 2,500 microcredit institutions in the country.
Furthermore, Bhuiyan expressed concerns about defaulted loans, which have been on the rise for years in the country. He highlighted that interest income is not obtained from the two per cent deposit made to convert defaulted loans into regular loans, which is significantly less than the interest income.
He also expressed his doubt about the recovery of defaulted loans and the culture in the country that is preventing their collection.
The FRC chairman also discussed the shortage of manpower in the FRC and the ongoing recruitment process. Once the recruitment is completed, the focus will be on the capital markets first, he said.
He stated that the audit of accounts in many companies is manipulated to show false profits. Bhuiyan emphasised the importance of verifying the validation of price-sensitive information, and mentioned the initiative to register auditors to increase transparency in the audit of accounts.
He said life insurance companies are not complying with IAS-1, which requires them to maintain a profit and loss account. Bhuiyan highlighted that although they have sent letters, they have not received any response from the life insurance companies.
CMJF’s President Ziaur Rahman and General Secretary Abu Ali were present at the event.
As per a survey styled ‘Bangladesh Business Environment 2022: Findings from the Executive Opinion Survey’ conducted by the Center for Policy Dialogue (CPD), as much as 56.3 per cent of respondents claimed that companies coming to the capital market through IPOs do not have a sound fundamental base.
Besides, 50 per cent of them said the listed companies do not maintain proper standard in preparing and publishing their financial reports; rather they are in anomalies with regard to financial reporting.
Another challenge in Bangladesh’s capital market is the suspicious trading in the secondary market, as 50 per cent of the survey respondents said the secondary market trading lacks transparency.
The intervention of the Bangladesh Securities and Exchange Commission (BSEC), the securities regulator, according to the survey, on listed companies, still remained very low, another barrier to ensure a vibrant capital market in the country. The principle role of the BSEC, as per the securities laws, is to supervise the listing procedures of companies on the stock exchanges.
Moreover, it is also the job of the regulatory body to look into whether the listed companies are publishing their quarterly or annual financial reports in a timely and proper manner.
It also oversees the accuracy of audit measures used to prepare companies’ financial reports and detects any possible anomalies or inconsistencies in any published financial reports.
In addition, the BSEC, as per the securities laws and guidelines, penalises individuals or companies if they get involved in any suspicious share transactions trying to manipulate the market sentiment.
CPD Research Director Khondaler Golam Moazzem said materially the country’s capital market still remained inefficient, adding that the regulatory bodies still lagged behind to make the market sustainable and investor-friendly.
