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THE ROLE OF
Chartered Accountants
THE ROLE OF ACCOUNTANT'S IN NATIONAL ECONOMY
IN Wealth Creation
for National & Social Development
October-December 2013
CONTENTS
EDITORIAL BOARD Editorial
ISSN 1993-3649
2
President’s Desk 3
ARTICLES
The Role of Chartered Accountants in Wealth 5
Creation for National and Social Development
- M. Farhad Hussain FCA
Md. Abdus Salam FCA
Gopal Chandra Ghosh FCA The latest Corporate Governance 9
Akhtar Sohel Kasem FCA
Guidelines issued by Bangladesh Bank:
Masih Malik Chowdhury FCA
Analyzing the changes made with some
Nasir Uddin Ahmed FCA
observations and recommendations
Sabbir Ahmed FCA
- Abdullah-Al-Mamun ACA
Md. Sayeed Ahmed FCA
Mahmudul Hasan Khusru FCA
Md. Abu Bakar FCA New Issue and Amendments of IFRSs to 27
Md. Mahamud Hosain FCA Interests in Other Entities: A Comprehensive
Mohammed Jashim Uddin FCA Analysis of IFRS 10, 11, 12, IAS 27 (Revised)
Snehasish Barua FCA & 28 (Revised) and IAS 31 (Withdrawn)
Ajit Kumar Paul FCA - 1Md. Kishlur Rahman ACA, ACMA
Md. Abid Hossain Khan FCA - 2Shah Md. Jubaer ACA
Muhammmad Aminul Hoque ACA
Zareen Hosein ACA Revised IASB Conceptual Framework 39
Md. Shahidul Islam ACA -laying the foundation for future IFRSs
Dipok Kumar Roy ACA - Abu HM Kibria, ACA
Chairman DRC-ICAB
Chairman CRC-ICAB
Concept of Takaful and its challenges 47
- Kazi Md. Mortuza Ali
S M Abu Nayem Ahmed, psc
Corporate Governance Vs Corruption: 61
Sqn Ldr (Retd.)
Role of MNCs
Senior Deputy Secretary-ICAB
- Tanzina Haque
DISCLAIMER
"The opinions expressed in this publication are those of the
respective authors themselves and do not necessarily reflect the
views of the Editorial Board of the Institute of Chartered Accoun-
tants of Bangladesh (ICAB) or the ICAB itself."
EDIT ORIAL
creation takes momentum, the their position has noble role to
function of Chartered Accountants play for the people who deserves
ultimately shape up the sustainable better products, better services.
and beneficial projects that is aimed And I truly believe, Chartered
at. The job of Chartered Accountant can help realizing that
Accountants is to bring financial aspiration.
discipline. Once the discipline in
It is at this backdrop, we chose the
terms of financial norms and
theme of the current issue as "The
To the essence, the wealth practices take place, social
Role of Accountants in Wealth
creation is understood as development is then ensured
Creation for National and Social
economic growth that benefits through economic emancipation.
Development".
most of the societies. It is an
In a fragile economy of ours, the
effective way not only to alleviate This issue of ‘Bangladesh
role of Chartered Accountants has
but also to solve the cause of Accountant’ will help to
been proved to be the best
poverty that most likely comes understand the need for our
mechanism to control oligopoly
with training and experience. inclusive engagement in managing
market of mobile operators and
the limited resources to meet the
The Chartered Accounting other multinational companies.
growing demand and create assets
Professionals in this regard has Their contributions I truly believe in
needed for the development of our
major role to play. A Chartered yet to discover in so many aspect of
socio economical development.
Accountant can represent a true our life.
and fair management information In fine, I would appreciate any
Organization should operate in an
with his professional expertise. comments/suggestions regarding
effective manner in current
Reliable and trust worthy any relevant matter of the
competitive business arena by
information can help making good publication of journal which will
reducing the risk level of property
decision by the investors in and help enriching the journal.
management with a view to
outside the country.
increase the value of the assets.
The institute of Chartered However, the accountants can't
Accountants of Bangladesh is solve the risk management totally
vested with the responsibility of unless they are rich with fair
creating highly trained and business information. So, they M. Farhad Hussain FCA
Chairman, Editorial Board
efficient world class accountants. It should always remain updated with
is recognized that our CAs have a the current business development.
wide range of experiences in the
As an accountant I must say, we are
development of financial services,
committed to support the
business organisation like
development of the business. A
companies, family trusts as well as
Chartered Accountant also has
partnerships, sole traders, tax
indirect role to enhance consumer
returns, etc.
protection. Their action should be
The Chartered Accountants are contributory so that the markets
well equipped with information to remain competitive, free of
ensure proper investment of distortion and manipulation. This
capital and other assets in the best will be always a challenge to them.
possible way. Once wealth Every professionals irrespective of
At the last quarter of 2013, I from Education, Training and cooperation for ongoing World
congratulate everyone involved Examination increased Bank financed project. Moreover,
with this journal for successfully significantly. we held several meetings with
cultivating and nurturing our ICAEW senior management team
intellect and wisdom to convey it Throughout 2013, ICAB upheld and discussed ICAB’s status,
to the readers. its network with IFAC, CAPA and progress and standards along with
SAFA in pursuit of its global other development matters. As per
Standing at the brim of the professional standards. ICAB has invitation of ICAEW, ICAB first
calendar year 2013, I could say been emphasizing on building time sent one representative to
my endeavor towards professional sustainable relationship with the attend ICAEW Annual Tutor
excellence will remain as it is. reputed organizations in and Conference. This Conference was
outside the country. ICAB has an invaluable opportunity to meet
As you know, I promised to already MoU with ICAEW and with ICAEW Examiners and see
enhance the image of ICAB in CPA Ireland. ICAB is the member how the ICAEW Advanced Stage
national and international arena of IFAC, CAPA and SAFA. ICAB papers are marked. It is to note
vigorously. The path towards has MOU and MRA with ICAEW that, for the first time from ICAB
progress and advancement was and CPA Ireland. Building mutual side, I gave a presentation
not even; hindered by many relationship with the professional “Concepts and Applications of
unexpected happenings. We were bodies from other developed Islamic Banking and Finance with
riddled with the FRA issue, which countries is also going on. ICAB Financial Reporting Implications”
forced us to divest our effort and has MoU with the Office of the to the audiences comprising of
energy from our routine affairs and Comptroller and Auditor General. experts and senior management
finally, we could come to a ICAB provides training to the team, ICAEW. I am happy to note
reasonable conclusion. officials of Central Bank of that a team of ICAEW visited ICAB
Bangladesh (BB), National Board recently and expressed their
As you are aware, numbers of of Revenue and other regulatory satisfaction on ICAB’s performance
ICAB Students and Members have bodies and commercial over the years since the World
been increasing sharply since organizations. ICAB has Bank funded Twining Project with
2010 after recognizing paper by implemented successfully the ICAEW.
paper results as guided by ICAEW World Bank Projects ‘Public
with a compatible curriculum and Private Partnership for Improved In 2013, we continued our effort
in line with International Audit Quality Assurance’. furthering the existing MoU with
Education Standards (IES). the Office of the Comptroller and
Currently, the total numbers of ICAB sincerely nurtured the Auditor General (OCAG) to
articled students are about 23,029 mutual relationship with ICAEW to strengthen both Public and Private
and members are about 1,442. ensure the standard that the sectors’ auditing capacity. A
ICAB’s financial strength is English Institute wanted. Now Knowledge Sharing Session was
stronger than before even without ICAEW become closer to ICAB organized in presence of
enhancing members fees and than before. We met ICAEW Representatives of National Audit
students charges during the year President and expressed the Office (NAO), UK, CIPFA,
2013. Specially after importance of ICAEW’s support OCAG’s DGs, ICAB Council
implementing the new curriculum under MoU for strengthening the Members and Past Presidents.
and exam system, the incomes capacity building of ICAB and Under the signed MoU with Local
intellectual property or the use of of imagery has been David Solomon ACCOUNTANCY.
leasing have led to the question of and Tony Tinker, Solomon was a WITHOUT ACCOUNTING,
how to account for these types of strong advocate of neutrality in
transactions? This fundamental accounting and used images of ORGANIZATIONS WOULD
change has led to loopholes in journalist, speedometer, telephone
HAVE NO BASIS OR
accounting and led to manipulations and cartography to illustrate his way
and scandals. The loopholes in of thinking. He suggests that FOUNDATION UPON
conceptual framework can be accountants should be like
illustrated by the collapse of Kmart journalists, reporting the news and WHICH DAILY AND
where the blame was partly placed not making it. Accountants should LONG-TERM DECISIONS
upon problems with FASB’s function like a speedometer, in
conceptual framework. However capturing the real economic speed of COULD BE MADE. THE
these manipulations and standards an entity. In addition accountants
BUDGETS FOR
are reduced to a great extent by the should convey information
various accounting frameworks, impartially like a telephone. Solomon MARKETING ACTIVITIES,
principles and standards. further suggests accounting should
function like cartography n producing PROFIT REINVESTMENT,
Accounting theorists and researchers maps of economic reality. These RESEARCH AND
have also played a role in attempting images give us greater insight into
to apply theory into accounting. The how accounting should function in a DEVELOPMENT, AND
use of imagery has enabled theorists real world.
COMPANY GROWTH ALL
to explore the nature of accounting
practices, by applying the Tony Tinker however argues against STEM FROM THE WORK
characteristics of the image in the Solomon’s use of metaphors, as being
context of accounting. unsuitable and problematic. Tinker OF ACCOUNTANTS.
suggests that journalists portray reality
Two contributors to the development by disregarding some of the facts.
of accounting theory, through the use Also according to Tinker, “Solomon’s
1.2 Vacancy of office of Director any financial institutions within 1.4 Appointment of Alternate
one year from the date of Director
a) The office of a Director shall be repayment of the total dues to
vacated as per the provision of the bank. It is mentionable here The provision regarding
Section 108(1) of Companies that the dues can be adjusted appointment of alternate Directors
Act 1994. Moreover, the office with the shares held by the in the latest CG Guidelines has
of a Director shall also be Director in that bank company. been kept same as mentioned in
vacated if he becomes When a Director of a bank the BRPD Circular No. 12 dated 10
loan-defaulter and does not company gets notice as per June 2003.
repay the loan within two Section 17 of Bank Company
months after getting a notice Act 1991, he cannot transfer his 2. Director from Depositors
from Bangladesh Bank as per shares of that bank company
Section 17 of Bank until he repays his all the The provision mentioned in Bank
CompanyAct 1991; provides liabilities of that bank company Company Act 1991 regarding
false declaration at the time of or financial institutions. appointment of Director from
appointment or observing his depositors has been amended in
disqualification as a Director. c) Besides, BB can remove 2013; appointment of Directors
Directors or Chairman of a bank from depositors is no longer
b) If the office of a Director is company other than the required. But, in compliance with
vacated as per Section 17 of state-owned banks for the provision of Section 15(9) of
Bank Company Act 1991, he conducting any kind of Companies Act 1991 (amended up
will not be eligible to become activities that is detrimental to to 2013), bank company may
Director of that bank company the interest of the banks consider the tenure of existing
or any other bank company or depositors or against the public Directors from depositors or may
8. Honorarium for attending the i.e. the resume of the selected a. In terms of the financial,
Board Meeting person, and appointment business and administrative
condition (direct and indirect authorities vested upon him by
The provision for getting salary-allowances and other the Board, the CEO shall
honorarium for attending the Board benefits) remain unchanged. discharge his own
meeting mentioned in the BRPD responsibilities. He shall remain
Circular Letter No. 03 dated 02 ii. The selected person shall also accountable for achievement of
March 2008 has been kept have to submit declarations i.e. financial and other business
unchanged in the latest CG Declaration as per Attachment targets by means of business
Guidelines i.e. as the Chief A and Confidentiality plan, efficient implementation
Executive is a salaried executive, Declaration as per Attachment thereof and prudent
he will not get any honorarium for B of the latest CG Guidelines. administrative and financial
attending the Board meeting or In the Attachment A some new management. The said
Board formed Committee meeting. conditions have been added provisions mentioned in the
with the earlier ones. The latest CG Guidelines are same
9. Evaluation Report Confidentiality Declaration as as those mentioned in the
per Attachment B has been BRPD Circular No. 06 dated 04
The captioned provision is newly newly inserted in the latest CG February 2010.
inserted in the latest CG Guidelines.
Guidelines i.e. for reappointment b. The CEO shall ensure
of Chief Executive; the Chairman 11. Decision of Bangladesh Bank compliance of the Bank
of the bank shall have to submit a is final Company Act 1991 and other
Board approved evaluation report relevant laws and regulations in
to the Bangladesh Bank. The captioned provision discharging of routine functions
mentioned in the BRPD Circular of the bank. The said provisions
10. Prior Approval from Letter No. 15 dated 03 September mentioned in the latest CG
Bangladesh Bank 2002 has been kept unchanged in Guidelines are same as those
the latest CG Guidelines i.e. the mentioned in the BRPD
The captioned provision which decision of BB for appointment of Circular No. 06 dated 04
was included in the BRPD Circular the Chief Executive will be treated February 2010.
Letter No. 15 dated 03 September as final and such appointed Chief
2002 and BRPD Circular Letter No. Executive cannot be terminated, c. The CEO shall include clearly
17 dated 14 October 2002 released or removed from his/ her any violation from Bank
remained unchanged with office without prior approval from Company Act 1991 and/ or
inclusion of the following new Bangladesh Bank. other relevant laws and
conditions: regulations in the “Memo”
B. Responsibilities and Authorities presented to the meeting of the
i. The proposal shall be signed by of Chief Executive Board or any other Committee
the Chairman of the Board and (s) engaged by the Board. The
the Board approved copy of the The Chief Executive of the bank, said provisions mentioned in
proposal is to be submitted to whatever name called, shall the latest CG Guidelines are
the Bangladesh Bank. The discharge the responsibilities and same as those mentioned in the
attachments with the proposal exercise the authorities as follows:
Impact of IFRS 10 in respect of beginning of reported year. ability to use its power to affect the
consolidation of JK International Despite JK has no investment in amount of the investor’s returns, so
Limited Hope, it has power of control on it will be considered at the time of
its operational affairs. Moreover, all consolidation.
All entities that were consolidated members of Hope must undergo
in the financial statements as the an approval from JK before getting IFRS 11 ‘Joint Arrangements’ in
relationship fulfills all three a loan and investment transaction. Replacement with IAS 31
requirements of consolidation and Even JK gets commission from ‘Interests in Joint Ventures’
will be consolidated in reported Hope for providing management
year. services. Objective:
Hope Cooperative Services, Brazil Thus Hope fulfills the condition of The objective of IFRS 11 is to
(Hope) was incorporated in the power over the investee and the establish principles for financial
Key Difference between IFRS 11 Vs IAS 31with regard to recognition and accounting treatments:
IAS 31 IFRS 11
Elaboration
JCO/ JCA: Jointly controlled operation/ jointly controlled asset; JO: Joint operation
JCE: Jointly controlled entity; JV: Joint Venture
IFRS 11 supersedes IAS 31 ‘Interests in Joint IFRS 11 can be IFRS 11 eliminates the
Ventures’ expected to affect use of proportionate
introduces two accounting categories many entities consolidation for joint
whose applicability is determined based on operating in the ventures. This will be a
the substance of the joint arrangement extractive industries, significant
eliminates the option of using proportionate property and presentational change
consolidation for joint ventures construction sectors for the many ventures
eliminates IAS 31’s ‘jointly controlled where joint ventures that chose this
operations’ and ‘jointly controlled assets’ and other joint accounting policy under
categories arrangements are IAS 31. Although net
many of the arrangements that would have common. It may of assets will not be
been classified under those categories will course have a affected, the removal of
fall into the newly defined category ‘joint significant effect on that method of
operation’. individual accounting will affect
companies in other individual balance sheet
industries. and performance ratios.
IFRS 12 combines the disclosure requirements for Most entities can IFRS 12 specifies
subsidiaries, joint arrangements, associates expect to be affected minimum disclosures
and unconsolidated structured entities by the new that an entity must
within a comprehensive disclosure disclosure provide. Some of this
standard requirements of IFRS information will be new
provides more transparency on 12. Parent and its preparation will
‘borderline’ consolidation decisions companies whose require planning.
enhances disclosures about subsidiaries have System modifications
unconsolidated structured entities in which non controlling and enhancements may
an investor or sponsor has involvement interests and be required to address
will help investors to assess the extent to businesses that the change in guidance
which a reporting entity has been involved operate through so- and to provide the
in setting up special structures and the called structured necessary information
risks to which it is exposed as a result. entities are likely to for the new disclosure
be especially requirements.
affected.
The following table presents the summary of impact assessment from the above discussions:
Assets Liabilities
Definition and/or An asset can be a single asset or one or The proposed changes might require
recognition more separate assets in a set of an entity to recognise all liabilities in
rights/bundle of rights. This could allow the balance sheet regardless of
treatment of many non-financial assets to whether it can avoid fulfilling it with
be similar to the treatment of financial any uncertainty about the outcome
instruments, i.e. being sliced and diced being recognised in measurement.
from an accounting perspective.
Derecognition An asset potentially can be taken off the All liabilities are likely to remain on
balance sheet more easily if the entity the balance sheet as long as it is
loses control of legal rights (e.g. repo considered not practical for the entity
securities). to avoid fulfilling it.
Measurement Different measurement bases for assets and liabilities are to be continued. However
the number of bases are likely to be limited and streamlined including guidance on
how an asset contributes to future cash flows or
how a liability will be fulfilled or settled.
TAKAFUL
Many experts feel that there is of loss, if and when loss arises, he profit with less risk involved in
nothing wrong with surplus is not remunerated in any way. investment. Observers suggest that
distribution as far as Shariah restricted Mudarabah is more
compliance and regulation is Mudarib is free to take any suitable for takaful or Islamic
concerned. There is no specific decision to manage the business insurance, as this would ensure
Shariah ruling that prohibits for the betterment of the cautions investment of the takaful
surplus distribution under takaful, Mudarabah contract, wherin assets. Moderate and stable profit
as long as it is distributed among provider of capital is in real sense a is more desirable in takaful
the parties entitled to and without sleeping partner only. However, business than adopting policies
exploitation by one party over the the Mudarib must exercise which aisus at maximum profit at
other. prudence, due diligence, business high risk.
norms, customs, rules and lows
Mudarabah (partnership) relating to the Mudarabah contract. Although loss under Mudarabah
Model There can be of course restricted contract is borne by the capital
Mudrabah contract wherein the provider, the Mudrib can be held
The Mudarabah principle of trade provider of capital restricts the responsible for such loss, if he fails
as per Shariah is a partnership operation under contractual terms to abide by the terms of the
between two parties where one relating to product, type of contract, or do not exercise due
party provides capital (rab-ul-mal) investment, market etc. In this case diligence mouse fund, or act
and the other party extends the provider of capital should not negligently. The profit sharing ratio
necessary management to operate interfere in day-to-day operation of between the takaful operator
the business venture in the the business. (Mudrib) and the participants as
capacity of trustee or manager of provider of capital need to be set
the fund to earn profit for the The Mudarib, as trustee needs free clearly in advance in the contract.
venture by investing the capital. hand in decision making and Duration of Mudarabah
Second party is the Mudarib ( manage the operation to bring best investment, mode of fund
managing the capital under output and ensure reasonable utilization (restricted/unrestricted),
contract) i.e. partner to share profit profit. Restricted Mudarabah is the mode of operation of the fund
without providing capital for the permissible in Mudarabah as it under Shariah principles should be
venture. The Mudarib can claim helps the provider of capital to clearly spelled out in the
share of profit only and not salary, protect his/her fund from engaging Mudarabah contract to ensure
commission or any other into high risk venture. The capital accountability and transparency of
remuneration. Mudarib bears share owner may target moderate or low the system.
Takaful is a profit-sharing
Management Exp arrangement. Takaful operators are
expected to exercise prudence in
Flow Chart making investment decisions and
not to subject such funds to
problem", the average score across Nigeria and Africa because of our cope with this questionable
the countries surveyed was 4.1. collapsed systems.’ And this is the practices
picture of most developing
MNC’s role in CG and countries. Some instances of bribery are
the result of extortion. The
corruption
It has been argued that companies, morality of extorted payments
especially multinationals, are the depends on the nature and
Do the business organizations
biggest perpetrators using a circumstances surrounding the
contribute to the reduction of the
sophisticated network of notional payments.
corruption in a particular country
companies and corporate structure
by exporting good corporate
to facilitate corrupt practices in In extreme cases MNC’s
governance? It is evident that
developing countries (Kapoor, inability or unwillingness to
presence of foreign owned
2005, Martens, 2007). Firms from control rogue employees also
subsidiaries, on average, reduce
countries where domestic contribute to corrupt practices.
the level of corruption of the host
corruption is minimal play a major
country (Chuck & Solomon, 2006).
role as bribe payers into corrupt But the use of bribery and
That is MNCs play a major role in
environments (Dunfee 2000). inducement to secure competitive
combating corruption and boost up
Some factors can be identified as advantages is primarily a matter of
good corporate governance,
responsible for explaining this type executive discretion rather than
because they have the opportunity
of inconsistent behavior of MNCs. any legal or moral compulsion
to exchange good corporate
(Otusanya 2012). So it is possible
practice across the country. But is
Firms may involve in corrupt by the firms to control themselves
it the whole story? Sorry to say-
practices due to competitive from this type of dishonest
No. Though they can do something
necessity. They may find activities.
better, they are actually taking
themselves at a serious
advantage from corrupt economy.
disadvantageous position if they Combat corruption through
The Head of Nigeria’s Economic
refuse to pay bribes while CG
and Financial Crime Commission,
others continue to do so.
Nuhu Ribadu said, ‘I have seen
MNC’s need to show respect for Remember that one corruption
multinationals and big oil
local cultural norms. As a result gives birth to another one. The
companies play by the rules
sometimes they are bound to second transaction may lead to
elsewhere, but behaving badly in
References
Barth, M. E., W. R. Landsman, M.H.
Lang, and C. Williams. “Are
IFRS-Based and US GAAP-Based
amounts Comparable?” Journal of
Accounting and Economics,
Forthcoming
the essential qualitative making by different parties like Bohusova H. (2011) “General
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information internationally, which auditors, govt. and even the Convergence” Acta Universitatis
may lead to a harmonized practice general people. Agriculturae et Silviculturae
for all stakeholders. Mendelianae Brunensis: 59: 27-36
Comparability not only in case of
Cascino, S. and J. Gassen. (2012).
Having on set of standard also accounting events, but also in “Comparability effects of mandatory
provides a great deal of context of the economic events, IFRS adoption.” Working Paper,
comparability and continuity may be ensured, whether we want London School of Economics.
especially to the multinational to know about the economy of
organizations, with business spread different countries of the world DeFranco, G., S.P. Kothari, and R.S.
over different countries. For from the same aspect. Verdi. (2011). “The Benefits of
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895-931
in different stock exchanges evident that no standard of these
throughout the world would two would exist alone in the long Deloitte, 2008, “IFRS and US GAAP –
become more synchronized. run without making any A Pocket Comparison”, Deloitte
Moreover, exchanging staffs and convergence. That’s why the Development LLC
employees between branches of combined effort by the standard
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On the other hand, by solving the result in near future, provided that,
Financial Accounting Standards Board
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debate, a uniformed set of accordingly. FASB Statements”, www.rutgers.edu /
accounting standards may lead to Accounting / raw / FASB / public /
objective and accurate decision index.html, September 1999.
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