What is the Financial Reporting Act(FRA- 2015)? Main Purposes of this ACT:
The Financial Reporting Act, 2015 (FRA-2015) is a legislative framework introduced in Bangladesh to regulate and ensure high standards of financial reporting for businesses and other entities. The FRA-2015 aims to establish a transparent and reliable financial reporting system, promote accountability, and enhance the quality of financial information disclosed to stakeholders, including investors, creditors, and the general public.
Here’s a detailed explanation of the Financial Reporting Act, 2015 (FRA-2015) from the perspective of Bangladesh:
1.Background and Objective:
The FRA-2015 was enacted to enhance the credibility and reliability of financial reports in Bangladesh, in line with international standards. Prior to the Act, financial reporting was somewhat fragmented, with various regulations scattered across multiple laws, which sometimes led to inconsistencies in reporting. This Act was intended to create a unified framework to address these issues and align Bangladesh’s reporting practices with global best practices, ensuring that financial statements reflect a true and fair view of an entity’s financial position and performance.
The primary objectives of the FRA-2015 are:
To ensure compliance with International Financial Reporting Standards (IFRS).
To improve the quality and transparency of financial statements.
To establish a regulatory body to oversee financial reporting and accounting practices.
To promote accountability in financial disclosures.
2.Key Provisions of the FRA-2015
a. Regulatory Oversight and Bodies:
The FRA-2015 established a Financial Reporting Council (FRC), an independent body that is responsible for overseeing financial reporting practices in Bangladesh. The FRC ensures that the financial reporting by organizations complies with international standards, and it works to prevent malpractices in the preparation of financial statements.
b.Adoption of International Financial Reporting Standards (IFRS):
Under the Act, financial reports in Bangladesh must be prepared according to the International Financial Reporting Standards (IFRS) or the Bangladesh Financial Reporting Standards (BFRS), which are harmonized with IFRS. The adoption of IFRS ensures that the financial reports are globally comparable, improving Bangladesh's integration into the international financial system.
c. Mandates for Publicly Listed Companies:
Publicly listed companies, banks, non-bank financial institutions (NBFIs), insurance companies, and other regulated entities are required to adhere to the FRA-2015 guidelines. They must ensure that their financial reports are audited by an independent auditor and that they publish these reports regularly for the benefit of shareholders and the public.
d. Audit and Auditors’ Role:
e. Corporate Governance and Transparency:
The Act mandates that entities maintain proper records of their financial transactions and disclose financial information in a transparent manner. This helps ensure that stakeholders, especially investors, can make informed decisions based on reliable data. The law also strengthens the corporate governance framework, setting guidelines for how businesses should manage their financial affairs.
f. Penalties for Non-Compliance:
The FRA-2015 establishes strict penalties for non-compliance with its provisions. Entities that fail to comply with the financial reporting requirements can face substantial fines, sanctions, or even suspension of business operations. These penalties act as a deterrent to malpractice and encourage businesses to maintain transparency.
g. Accounting Standards Board (ASB):
The Act created the Accounting Standards Board to play a crucial role in setting and updating the financial reporting standards in Bangladesh. The ASB ensures that the standards are in line with the latest global financial reporting trends and developments. It also educates and provides guidance to the accounting community in the country.
3.Impact of the FRA-2015 in Bangladesh
The implementation of the Financial Reporting Act, 2015 has had several significant impacts on financial reporting and corporate governance in Bangladesh:
a. Improved Quality of Financial Reporting:
By aligning financial reporting practices with international standards, the FRA-2015 has raised the quality of financial reports in Bangladesh. Companies now prepare financial statements that are comparable to those in other parts of the world, increasing investor confidence in the local market.
b. Enhanced Investor Confidence:
The adoption of IFRS and the oversight by the FRC have greatly enhanced the credibility of financial reports in Bangladesh. Investors, both domestic and foreign, are more confident in making investment decisions because they can rely on the accuracy and transparency of financial information provided by companies.
c. Strengthening Corporate Governance:
The FRA-2015 has contributed to the improvement of corporate governance in Bangladesh. By enforcing strict financial reporting standards, the Act helps in ensuring that companies are run transparently and with accountability to shareholders and stakeholders.
d. Regulatory Alignment with Global Practices:
The Act helps bring Bangladesh’s financial reporting practices in line with global trends, making it easier for local companies to access international markets and for foreign investors to invest in Bangladesh. This has the potential to boost foreign direct investment (FDI) into the country.
e. Encouraging Ethical Practices:
By establishing a regulatory framework and imposing penalties for non-compliance, the FRA-2015 encourages ethical financial practices. Companies are now more likely to engage in accurate financial reporting, minimizing the risk of fraud and misstatements.
4. Challenges in Implementation:
Despite the positive impact, there are some challenges associated with the full implementation of the FRA-2015:
Capacity Building:
While the Act mandates the adoption of IFRS, many small and medium-sized enterprises (SMEs) in Bangladesh face challenges in implementing these standards due to a lack of resources and skilled personnel.
Regulatory Enforcement:
Though penalties are in place for non-compliance, the enforcement of regulations can sometimes be slow or inconsistent, leading to concerns about the effectiveness of the Act in certain sectors.
Awareness and Education:
A gap remains in the awareness of the FRA-2015 among some business owners and accountants, particularly in smaller businesses and non-listed companies.
In Finally:
The Financial Reporting Act, 2015 (FRA-2015) is a landmark piece of legislation in Bangladesh’s financial and corporate governance landscape. By mandating the adoption of international financial reporting standards and establishing a robust regulatory framework, the FRA-2015 has improved the reliability, transparency, and accountability of financial reporting in the country. However, for the Act to realize its full potential, continued efforts are needed to address the challenges of enforcement, awareness, and capacity building.