FRC: CA versus CMA Md Shahadat Hossain The proposed Financial Reporting Act (FRA) is getting wide media coverage. This act has been approved in principle by the cabinet. The purpose of this proposed act is to create an independent and impartial body that can regulate reporting on financial matters of public interest entities and improve the oversight of the accounting and auditing profession. Under the law, a council namely Financial Reporting Council (FRC) will be formed to achieve the objective. At present, there is in our country an institute, namely the Institute of Chartered Accountants of Bangladesh (ICAB) which was established under the Bangladesh Chartered Accountants Order, 1973 (Presidential Order No. 2 of 1973) for the purpose of regulating the profession of chartered accountants. This clearly identifies the chartered accountants as professionals qualified to render services like auditing or verifying financial transactions, books, accounts, records, financial statements, financial accounting. They also render professional services concerning accounting methods, systems and techniques, including management consultancy services. It has also been mentioned that nobody will be allowed to do audit practice without having any certificate from the ICAB. The objective of the proposed council and the institute is almost same. Since the purpose of FRC and ICAB is almost same, the ICAB can be strengthened, if required, instead of framing a new law and creating another body spending the taxpayers money. In our country there is a common voice that there is no shortage of laws but there is the lack of their enforcement. The area of accounting and auditing is no exception. For example, if we look at the financial statements and audit reports done a couple of years back of almost all the nationalised commercial banks, it may be found that auditors had mentioned that the financial statements did not present the true picture. Apart from this, a lot of adverse comments about genuineness of financial statements of corporations in different sectors and their units have been made by the auditors on several occasions. So, in view of the past experience as regards to evaluating the audit reports and taking remedial measures based on such audit reports it is not irrelevant to cast a doubt about proper functioning of the FRC and effectiveness of the FRA. Since the chartered accountants have the authority to deal with reporting on financial matters and the objective of the FRC is to regulate the reporting on financial matters of public interest entities, it is very much pertinent to have discussions with the government before finalisation of the proposed act. As reported in the media, the Institute of Cost and Management Accountants of Bangladesh (ICMAB) has directly and indirectly hit out at the ICAB. They have the perception that chartered accountants have influenced the government to exclude cost and management accountants (CMA) from the FRC. The perception is completely wrong and baseless, because if we view the objectives of CMAs from the global perspective, it can be realised that the main objectives of cost accounting are: ascertainment of cost, determination of sale prices, cost control and cost reduction, ascertaining profits from each activity and assisting management in decision-making. In addition, if we view the objectives of formation of the ICMAB, it may be found that the ICMAB was formed under the Cost and Management Accountants Ordinance, 1977 (the Ordinance No. LIII of 1977) issued by late President Ziaur Rahman. As per the contents of the Cost and Management Accountants Ordinance, the ICMAB was constituted to regulate the profession of CMAs. Again as per section 2(2) of the ordinance, a member of the ICMAB should be deemed to be in practice, when he: engages himself in the practice of cost and management accounting or offers to perform services involving costing or pricing of goods or services or preparation, verification or certification of cost accounting and related statements, or identifies himself to the public as a cost and management accountant or renders professional services or assistance in or about matters of principle or details relating to the cost and management accounting procedures or recording, presentation or certification of costing facts or data, or renders such other services that, in the opinion of the council, may be rendered by a cost and management accountant in practice. From the content as mentioned above, it is clear that there is no relation between the objectives, functions and purposes of the ICMAB and the FRC. The two bodies are completely different. Considering such distinction, if the government excludes cost and management accountants from the FRC, it will be a wise decision. In addition to this, as per the proposal, the FRC will be an independent and impartial body. To make the body independent and impartial all of its members will have to be impartial. But unfortunately, taking into consideration of the attitude which has been shown by the cost and management accountants of Bangladesh towards the other accounting and auditing professionals i.e. chartered accountants, who have the authority to deal with the reporting on financial matters, in an appeal to the Prime Minister as published in the Financial Express on July 09 last and their comments made at a press conference and published in different dailies on July 10, it may be assumed that they may not be impartial. So, the concerned authority can take steps for strengthening the ICAB, if necessary, instead of creating any additional body that can give rise to contradictions and confusions among the accounting and auditing professionals. However, if it is decided to form an FRC before finalising the formation of the council under the proposed FRA, it will be not only relevant but also essential to consider different objectives, functions and purposes of the ICMAB and the FRC. Finally, the cost and management accounting profession is a very essential profession for a country like Bangladesh. There are scopes for the CMAs to play very important roles in the society, especially in the economy of the country. In our country there are various state-owned organisations, which are incurring heavy losses year after year while the private sector doing business in the same areas are making profits. The main reason for the losses incurred by the state-owned organisations is the high cost of production. The CMAs can play a vital role by ascertaining the reasons of the high cost of production and making necessary recommendations about how to reduce the cost of production. Under the comparative cost theory of international trade, CMAs can help increase exports by giving suggestions to reduce cost of production. The writer is Council Member and ex-vice president of the Institute of Chartered Accountants of Bangladesh (ICAB). sha.hossain@gmail
Posted on: Mon, 21 Jul 2014 08:38:57 +0000
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