To prevent motivated volatility in interim performance of publicly traded firms, their quarterly financial statements should be at least shortly reviewed by statutory auditors, suggested Chartered Accountant (CA) Md Shahadat Hossain, president of The Institute of Chartered Accountants of Bangladesh (ICAB), in a recent interview with The Business Standard.
His suggestion came against the backdrop of a common allegation that many listed firms willfully show inflated or deflated performance in quarterly statements to influence stock prices, but remain untouched.
For example, Bay Leasing and Investment Ltd, showing Tk1.95 positive earnings per share (EPS) for the first nine months of 2021, posted such a big loss in the last three months that resulted in an annual loss per share of Tk0.99 instead of at least some expected profits.
The Bangladesh Securities and Exchange Commission (BSEC) in September formed an inquiry committee to look into the deviation and check if any insider trading was linked with it.
Without naming any company, the ICAB president said there are some common tricks to manipulate financial statement figures – recognising sales revenue earlier or later than the actual selling time, showing higher or lower costs, assets, and many others.
If an auditor, who is appointed at annual general meetings for the next year, is mandated for at least a short review of a company's quarterly financial statements the credibility of the statements should improve, believes Shahadat Hossain.
The ICAB president also said that improved auditing practices in the country have already created an environment where accounting fraud would not remain undetected as statutory auditors are being compelled to do their job properly.
For instance, Nurani Dyeing entrepreneurs fled the country embezzling the funds it raised from the stock market years ago, its factories remained closed, but the company kept publishing audited financial reports as if it were in regular business until the Dhaka Stock Exchange (DSE) inspection found the truth.
The auditors of the relevant years aided the fraud by certifying whatever the company tried to show.
Another listed firm Sonali Paper disclosed inflated assets, diverted its borrowed funds to stock trading instead of what it announced, and found a special auditor. And, its entrepreneur bagged a lot of profits by selling off shares at skyrocketed prices.
New auditor last year compelled Fu-wang Foods to adjust its huge overstated figures, which were overlooked previously.
The ICAB president also said the days of submitting different accounts to different stakeholders are over because of the ICAB's digital Data Verification System where only the audited account is uploaded so that the stakeholders can verify what they were provided by a company.
Auditors must raise flags in a professional manner – through qualified opinion, adverse opinion and emphasis of matter – to draw the attention of the users regarding deviations.
Such opinions in listed firms' annual reports increased by manifolds in numbers nowadays, said Shahabad, adding if any auditor is found to have compromised, the ICAB takes such tough actions that auditors barely dare to risk their career.