Bangladesh stands at a critical juncture in its economic development journey. With sustained growth over the past decade and increasing global interest in its market potential, the country must now focus on strengthening its institutional and regulatory frameworks to unlock the next phase of progress. Among the most critical areas requiring reform is the financial reporting ecosystem-an essential pillar of corporate governance, transparency, investor confidence, and ultimately, economic competitiveness. A fragile financial reporting environment not only erodes trust in the private sector but also acts as a serious impediment to foreign direct investment (FDI) and ease of doing business.
The Importance of Financial Reporting in Corporate Governance
Financial reporting is the backbone of any corporate governance architecture. It ensures that stakeholders -shareholders, creditors, regulators, and investors-have access to accurate, timely, and comprehensive financial information. Sound financial reporting reduces information asymmetries, facilitates better risk assessment, and helps companies attract capital at competitive costs. In the context of Bangladesh, where the private sector is increasingly integrated into global value chains, the demand for high-quality, credible financial statements has never been more critical.
The current ecosystem in Bangladesh is characterized by weak enforcement, limited capacity among preparers and auditors, non-compliance with standards in some sectors, and fragmented regulatory oversight. These shortcomings compromise the quality of financial information and diminish confidence in both public and private institutions.
Current Challenges in Bangladesh's Financial Reporting Ecosystem
1. Weak Regulatory Enforcement: While Bangladesh has adopted international financial reporting standards (IFRS), their enforcement remains uneven. Regulatory bodies such as the Financial Reporting Council (FRC), Bangladesh Securities and Exchange Commission (BSEC), Registrar of Joint Stock Company (RJSC), Insurance Development and Regulatory authority (IDRA), SOE Monitoring Cell, Micro Credit Regulatory Authority (MRA), Bangladesh Bank and the Institute of Chartered Accountants of Bangladesh (ICAB) face capacity and coordination constraints.
2. Quality of Audits: Audit quality is a serious concern. Many audits are conducted with inadequate due diligence, and there is a perceived lack of independence between auditors and their clients. Weak peer review mechanisms and an underdeveloped audit regulatory regime allow subpar practices to persist. This undermines investor confidence in the financial statements presented by companies, especially in the non-listed sector.
3. Limited Financial Literacy and Governance Capacity: Many company boards, especially in family-owned or SME businesses, lack members with sufficient financial insight. This hampers internal governance mechanisms and leads to poor oversight of financial reporting processes. Additionally, preparers of financial statements often lack the training needed to apply complex accounting standards properly.
4. Lack of Transparency and Public Disclosure: Transparency in corporate disclosures, particularly among non-listed firms, is minimal. Many businesses remain reluctant to provide adequate information to the public or investors. This culture discourages foreign investors seeking reliable information.
5. Overlap and Gaps in Institutional Roles: The presence of multiple regulators with overlapping mandates creates confusion and regulatory arbitrage. There are gaps in monitoring compliance, especially among non-listed companies. Without clear accountability including those of oversight bodies, efforts to reform the system remain fragmented.
Implications for FDI and Ease of Doing Business
Foreign investors prioritize jurisdictions where transparency, accountability, and consistent reporting are the norm. Bangladesh's current financial reporting environment creates uncertainty and elevates perceived risks for international capital. Investors may fear misrepresentation of financial health, tax compliance issues, or hidden liabilities, all of which drive up the cost of due diligence and discouragement. Similarly, for businesses operating in or entering Bangladesh, a weak reporting environment creates inefficiencies in legal, financial, and tax assessments, thereby dragging down the country's global rankings in the ease of doing business.
Pathways for Reform
To strengthen corporate governance and attract sustainable FDI, Bangladesh must embark on a multi-pronged reform of its financial reporting ecosystem:
1. Strengthening the FRC and Audit Oversight: The FRC must be equipped with clear roles, funding, and capacity to monitor professional accountancy organizations and spearhead a risk-based inspection system to identify and penalize poor practices while incentivizing quality.
2. Capacity Building for Accountants and Auditors: There should be a national initiative to upskill financial professionals. ICAB and ICMAB should revise curricula prioritizing IT and business communication and introduce more robust continuing professional development at various levels.
3. Mandating IFRS for All Public Interest Entities (PIES): Adoption of full IFRS for all PIES-including banks, insurance companies, large corporates, and SOES-should be made mandatory. Simplified standards can be designed for SMEs to avoid undue burden.
4. Enhancing Board and Audit Committee Competency: Regulatory bodies should enforce minimum competency requirements for board members and audit committee chairs.
5. Coordination Among Regulators: A high-level coordination council involving BSEC, FRC, Bangladesh Bank, ICAB, RJSC, IDRA, SOE Cell and MRA should be institutionalized to align reporting requirements, avoid overlaps, and ensure unified enforcement strategies.
Conclusion
Improving Bangladesh's financial reporting ecosystem is not just a technical reform-it is a strategic imperative for enhancing the country's competitiveness, attracting FDI, and advancing good governance. As Bangladesh aspires to achieve upper middle-income status, robust financial transparency and accountability mechanisms will be essential for building investor confidence and ensuring long-term economic sustainability. With focused reforms and strong political will, the country can transform its fragile reporting landscape into a model of corpo- rate governance excellence in South Asia.
