BSEC bans three audit firms, four auditors over audit failures

The Bangladesh Securities and Exchange Commission (BSEC) has banned three audit firms and four auditors from auditing listed companies for several years after they failed to audit the financial reports of two listed firms properly.

In separate orders issued on April 23, the commission banned Mahfel Huq & Co Chartered Accountants, Ata Khan & Co Chartered Accountants, and Shiraz Khan Basak & Co Chartered Accountants. It also banned four auditors who are current or former partners of these firms.

The action comes amid long-standing criticism that auditors often go unpunished despite failing to detect irregularities in listed firms. As a result of inaccurate financial reporting, many investors were misled into buying shares and later suffered significant losses.

All three audit firms failed to properly audit the financial reports of Ring Shine Textiles for three separate years, according to BSEC.

During the pre-IPO period, Ring Shine Textiles distributed shares free of cost through a private offer, which was described as a clear act of forgery. The company also issued stock dividends to shareholders who had not paid for their shares. These allotments increased its paid-up capital without any actual money being received.

Later, in 2019, the company raised Tk 150 crore from the stock market to buy machinery and repay bank loans.

However, none of these irregularities was reported by the auditors.

MAHFEL HUQ & CO

Mahfel Huq & Co was banned for three years for failing to properly audit the financial statements of Ring Shine Textiles for the year which ended on June 30, 2018.

The audit did not provide reasonable assurance that the financial statements showed a true and fair view of the company’s financial position and performance, as required under auditing and reporting standards.

An enquiry committee formed by the BSEC found major irregularities in key items such as assets, retained earnings, and net profit. It also found that the firm issued an unmodified audit opinion without obtaining sufficient and appropriate audit evidence.

As a result, BSEC barred the firm from auditing any listed securities for three years from the date of the order.

The firm was also banned for one year for failing to properly audit Fareast Islami Life Insurance for 2018. A special audit found material irregularities, inadequate disclosures, and deficiencies in the financial reports, leading to the suspension.

In addition, Md Abdus Sattar, a former partner of the firm, was prohibited from auditing any listed securities issuer for five years.

Md Abu Kaiser, another former partner, was barred for two years.

ATA KHAN & CO

Ata Khan & Co faced action after a BSEC inquiry committee found material irregularities and anomalies in key financial statement items, including the assets and net profit of Ring Shine Textiles for the year ended June 30, 2019.

The firm issued an unmodified audit opinion without obtaining sufficient and appropriate audit evidence to support the reported figures.

It, along with its engagement partner, was found jointly and severally responsible for failing to conduct the audit in line with securities laws, resulting in financial statements that did not present a true and fair view of the company’s position and performance.

As a result, Ata Khan & Co was barred from inclusion in the BSEC auditors’ panel for three years, while Maqbul Ahmed, a partner of the firm, was barred from the panel for five years.

SHIRAZ KHAN BASAK & CO

Shiraz Khan Basak & Co audited Ring Shine Textiles for the year ended June 30, 2020, with Ramendra Nath Basak serving as the engagement partner, although he was not enlisted in the BSEC auditors’ panel.

A BSEC inquiry committee found material irregularities and anomalies in key financial statement items. The firm issued an unmodified audit opinion without obtaining sufficient and appropriate audit evidence to support the figures in the financial statements.

The audit failed to ensure that the financial report presented a true and fair view in line with International Financial Reporting Standards. The firm and its engagement partner were found to have failed to comply with securities laws.

As a result, Shiraz Khan Basak & Co was made ineligible for inclusion in the BSEC auditors’ panel for three years, while Ramendra Nath Basak was barred from the panel for five years.

The Daily Star emailed all the audit firms on Monday, but received no response before the report went to print. It also tried to contact Wasequl H Reagan, a partner of Mahfel Huq & Co, through phone calls and text messages, but he did not respond.