Based on our extensive experience in conducting internal audits on behalf of Japanese companies in Bangladesh, this series provides basic knowledge that may be useful for those in charge of conducting internal audits in Bangladesh (internal auditors and auditors, management posted to Bangladesh, global management at headquarters, and external auditors who need to conduct site visits as part of a group audit).This session will introduce basic knowledge that may be useful for those audit firms that need to conduct site visits to Bangladesh sites as part of group audits as external auditors.
In the first part of this series, we will explain accounting standards in Bangladesh.
Bangladesh has adopted International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS).Therefore, when conducting internal audits, it is basically safe to assume that the financial statements are in accordance with IFRS.
More precisely, Bangladesh has adopted International Financial Reporting Standards (IFRS) in the form of “adoption.This is a method of adopting IFRS as-is as a national standard, with some modifications as necessary.This has allowed IFRS to be incorporated into Bangladesh’s national legal system.These standards are known as Bangladesh Financial Reporting Standards (BFRS) and Bangladesh Accounting Standards (BAS), among listed (listed companies: those listed on the Dhaka Stock Exchange (DSE) and Chittagong Stock Exchange (CSE)) and non-listed companies,The application of IFRS 14 is mandatory for companies of a certain size and public nature (Public Interest Entities, PIEs).
However, IFRS 14: Delayed Assets by Regulation has not been adopted, and financial institutions: banks, insurance companies, and non-bank financial institutions (NBFIs) have been allowed to account for certain items differently from IFRS 9 under the guidance of central banks and insurance regulators.As a result, for example, they have been using a fixed ratio for the allowance for loan losses, which has been pointed out to be significantly different from the accounting under the ELC model in IFRS.The plan is to fully adopt IFRS 9 on the accounting treatment of financial instruments by 2027.
For non-listed small and medium-sized enterprises (SMEs), the Institute of Chartered Accountants of Bangladesh (ICAB) has issued the “BFRS for SMEs” based on IFRS for SMEs.Although the BFRS for SMEs has been made applicable from January 1, 2013, enforcement by the regulator is limited, and many SMEs still rely on simple accounting procedures and bookkeeping for tax purposes, such as the following.
Most SMEs in Bangladesh use the following methods of accounting and reporting
Bookkeeping for tax reporting purposes: Many companies keep minimal bookkeeping records for tax reporting purposes to the tax authorities and may not prepare detailed financial statements in accordance with international standards.
Simplified accounting procedures: Some companies use single-entry bookkeeping or cash basis accounting rather than double-entry bookkeeping, which can be a barrier to raising capital and attracting investment.
Informal handwritten and Excel management: Some firms do not use formal accounting software, but instead manage their finances by hand or with simple spreadsheets.