From the thesis on Financial reporting by Mr Tofazzul Hussain FCA

Pigou (1932) indicated that some kind of government actions was required to restrain those whose actions had harmful effects on others.

A well functioning FR regulatory system can benefit the economy of a developing country like Bangladesh in a number of ways. Government of Bangladesh can find truthful figures of the performance of business enterprises on which Tax and VAT revenue collection by NBR will be accurately collected and reasonably predicted.  RJSC will be able to collect appropriate amount of stamp tax on issued share capital.  Investors in the capital market will have better information to make informed investment decisions to make the share market vibrant and inclusive.  Listed companies that publish true information offer exciting growth prospects, thus more public participation will enhance equity capital and robust revenue collection by the DSE and CSE on the transactions.  Bankers and financiers will be able to make more safeguarded lending decisions.  It is obvious that country’s economic prosperity largely depends on the truthful representation of financial information which could be achieved in a strong reporting regulatory regime.  Intentional misreporting of financial information in accounts is a crime in the eyes of the existing corporate laws of Bangladesh. 

FINANCIAL REPORTING STANDARDS

Financial reporting standards can vary from one country to another, and sometimes even within a country. Some countries have a set of Generally Accepted Accounting Principles (GAAP). Standards can be “principles-based” (that is, more general and conceptual) or “rules-based” (more specific in terms of what companies must and must not report). While the IFRS (International Financial Reporting Standards) are considered principles-based, country-specific GAAP exist, which may be either rules- or principles-based.

Financial reporting standards are used to prepare financial statements and other financial reporting can be more appropriate for private entities.

FINANCIAL TRANSPARENCY

Financial transparency means that an outsider should be able to easily read and understand the financial statements of a company. Transparency plays an essential role in accessing outside capital and reducing the cost of capital because it reduces information risk – that is, the risk of losses due to lack of availability of information or information uncertainty.

HOW TO IMPLEMENT FINANCIAL TRANSPARENCY?

Financial transparency can be ensured by having both strong financial controls internally and using third party auditors.

FINANCIAL REPORTING CONTROLS IN ICS:

Financial controls play an important role in ensuring the accuracy of reporting, eliminating fraud and protecting the company’s resources, both physical assets and intangible (such as reputation).  Sound financial controls include:

• Segregation of duties: no one person alone should be in charge of initiating, approving, recording, and reconciling transactions.  This reduces the risk of both erroneous and inappropriate actions.
• Limited system access for appropriate personnel only.
• Physical security and inventory management system with routine management oversight or third party review.
• Review of financial reporting process.

Use of auditors:

Auditors lend credibility to financial information by providing independent verification of manager-reported information. Specifically, auditors provide an independent assessment of the accuracy and fairness with which financial information represents the results of operations, financial position, and cash flows of a company.