According to the Corruption Perceptions Index 2011 from Transparency International, Bangladesh ranked 147. It scored 26 out of 100. It is evident that the situation is distressing when the country dreams of graduating from the Least Developed Country to a developing country.
It has been 45 years. And the dream still seems ambitious because of the struggle to fight corruption. If it could not bargain against corruption, the goal might be shattered. When it comes to demolishing the root of corruption, the audit profession is one of the vital ones to assist. The question is how much the audit profession can create value for the economy.
The financial statements of the private and public limited companies, partnership firms, NGOs and etc. registered under RJSC audited by registered audit firms are mandatory compliance. Thus, the registered firms under the Institute of Chartered Accountancy of Bangladesh are the torchbearers of the audit profession in Bangladesh.
These firms provide opinions on whether the financial situations of the business entities are presented with a true and fair view. The opinions they provided are based on international standards, local rules, and regulations.
The role of statutory audits of public limited companies in ensuring the public interest is significant. The audit profession plays a vital role to resurrect the trust of people in investing in public sectors. The trust has been buried over the years. People are in doubt. The audit profession is somewhat responsible since people cannot trust audit reports. To provide reasonable assurance on something, audit firms require resources. And they lack it for sure.
The underpaid articled students are one of many catalysts behind the outcome. The avaricious firm sometimes forgets that the students need proper training to perform the audit process. The outcome is pretty much observant. Numerous reports without considering compliance with standards have been issued.
It is quite apparent that a person cannot emerge as ethical by memorizing the ethical guidelines. Some audit firms provide assurance services to the same business entities they provide accounting services including preparing financial statements. The audit firms don’t take any consideration of self-review threats. No safeguards are maintained. The only consideration they take is monetary significance.
The good news is that FRC, the watchdog of the audit profession, and ICAB, the regulatory body, have been fighting against these irregularities. Convicted negligent firms start to lose their license to practice. It is a new phenomenon. Perhaps, one can call it a revolutionary step made by the regulatory authorities in the audit profession. Document Verification System (DVS) has been initiated since 2020 to track the audit reports issued by the registered firm.
The DVS is definitely effective since the irregularities become more obvious than ever. The effectiveness of DVS shades the light in a way that it is quite promising and distressing at the same. It’s distressing because it depicts how much irregularities have been happening in the audit profession in Bangladesh. It is promising since the regulatory bodies now find an inception point of the improvement.
The Financial Reporting Council stated, ‘A total of 41,082 financial reports were verified by 400 professional chartered accountants. Of them, 17,041 financial reports were verified by 50 professional accountants, which is practically abnormal.’
In an interview with The Business Standard, one FRC official claimed that some of the firms with a small team signed 300 annual reports within a very short period of time.
It would be quite unfeasible to attain such numbers unless the team was made of superhumans.
Md Hamid Ullah Bhuiyan, chairman of the Financial Reporting Council said, ‘In most of the cases, companies have no direct contact with designated auditors, the auditors just sign the document without proper verification,’
When the financial statements do not present a true and fair view, it creates havoc in the economy at large. Every stakeholder who is the users of the audit reports of these companies can be affected.
A supplier evaluates the financial capability of its customer. Before providing goods or services on account, the supplier has to check whether the customer has the financial capacity to pay its off. The first independent source it may think of is the audit report of the customer.
Its evaluation on providing goods depends on the quality audit reports.
Banks scrutinize the financial capability of the entities. An audit report is one of the vital documents for banks to check the feasibility of lending funds to borrowers. If the audit reports are rigged, the banks would end up providing loans to the potential defaulters.
Before entering any industry, an entrepreneur evaluates whether his or her decisions to achieve the goal are conceivable enough. Evaluating the financial performance of that industry is the brainstorming point. Audit reports could have been the helping guide to the process. However, the report becomes so distorted, that entrepreneurs cannot rely on them even though it should have been the major source of financial information. The low quality audit report becomes an obstacle for the economy to accept the new entrepreneurs.
The National Board of Revenue (NBR) relies on audit reports to review the tax assessment. Audit reports as an independent and valid source of information assists the NBR to accomplish the tax collection process.
However it is the definition by book. In reality, the outcome has not been seen as satisfactory since some of the audit firms help their clients to alter the true reality to avoid tax. Every year the government loses a huge amount of tax revenue because of low quality audit reports.
If the audit professionals did not compromise their ethics, they could have assisted us to see a true picture of how much each industrial sector adds value to the economy. Government could have earned more revenue. Entrepreneurs become more energetic and encouraged to involve in the new businesses since the wave of valid and reliable information happens. The default rates could have been lesser than now.
A financial system needs an independent and autonomous body who can verify the financial information generated by the business entities. To control and ensure the true picture, the audit profession must follow the core principles.