Strengthening audit compliance with ICAB and FRC collaboration

A statutory audit is not a demand-driven service. It is a legally mandated regulatory requirement. Investors and business owners, particularly in small and medium enterprises or businesses not regulated by Bangladesh Bank, the Bangladesh Securities and Exchange Commission (BSEC), the Insurance Development and Regulatory Authority (Idra) or the Microcredit Regulatory Authority (MRA), generally do not seek statutory audits to assess operational performance or verify value creation and profitability. One reason is that such disclosures can increase tax liabilities.

Conversely, for commercial advantage, some business owners may seek audited, and at times inflated, financial statements to project stronger performance to lenders and potential investors. These conflicting motivations, ranging from under-reporting to overstated results, are rooted in self-interest. In this context, auditors must maintain professional competence, technical expertise and due care to ensure that financial statements are audited in line with legal requirements and present a true and fair view of performance and financial position.

A significant recent development by the Institute of Chartered Accountants of Bangladesh (ICAB) is the introduction of financial statements generated from a single source, with auditors issuing a unique Data Verification Code (DVC). This reduces the scope for producing multiple versions of financial information to serve competing interests. Auditors therefore carry greater responsibility to review, assess and certify whether financial statements truly reflect reality. Where they do not, auditors must issue appropriate opinions, whether qualified, adverse or disclaimers, depending on the extent of misstatements or limitations.

In practice, auditors often work in highly challenging environments. In many unregulated enterprises, transactions are poorly recorded or not recorded at all, supporting documents are missing or inadequate, books of account are not properly maintained, and financial statements are not prepared on a regular basis. Business owners commonly rely on tax experts to file returns, avoid legal complications and minimise tax exposure. These experts may request audit reports to support tax filings.

Although auditors may be formally appointed to meet statutory requirements, there is sometimes an expectation that audit work will be carried out according to the directions of owners or tax advisers. In such situations, auditors must exercise strict professional judgement when accepting engagements and must refuse any appointment that compromises independence or involves unlawful practices. External parties should not be allowed to interfere in the audit process or undermine legal and ethical standards.

While rules and oversight mechanisms developed by ICAB and the Financial Reporting Council (FRC) have become more stringent and broadly aligned with global benchmarks, corporate compliance with governance requirements remains weak. Disciplined operations, proper record keeping, adequate documentation and timely financial reporting are still treated as optional by many businesses, with limited implementation and monitoring.

A prudent response for auditors is to issue appropriately modified opinions when faced with non-compliance, inadequate records or insufficient documentation. This approach is professionally justified, as it places responsibility on business owners and management to address underlying weaknesses, particularly when modified opinions carry adverse consequences. However, such measures have limited impact without active and effective regulatory oversight.

For this reason, the professional regulator ICAB and the statutory oversight authority FRC should work jointly, within their legal mandates, to engage business associations through workshops, seminars and targeted training for owners, investors and management. These initiatives could strengthen compliance in accounting, auditing and taxation, improve documentation and record keeping, and encourage timely financial reporting. Auditor compliance alone cannot deliver meaningful reform unless businesses also adhere to legal and governance standards.

The writer is a fellow member of ICAB and a partner at Basu Banerjee Nath & Co, Chartered Accountants