Financial statement fabrication a major influence on market volatility
Fabricated financial statements is one of the key causes behind the volatility of Bangladesh's currency markets, according to industry analysts.
When an analyst or potential investor evaluates fabricated or misleading data, then they will not be able to make a proper forecast.
"This is how they lose money and in turn, the marketplace becomes volatile," said M Khairul Hossain, chairman of the Bangladesh Securities and Exchange Commission (BSEC).
Hossain made these comments throughout a seminar titled, 'Financial Statements Analysis and Detection of Fraud', which was organised by the Bangladesh Academy for Securities Market (BASM) at the BSEC headquarters in Dhaka yesterday.
Globally, most companies provide factual information on their financial statements in order that interested parties can effectively decide whether to get or not. However, the case is opposite in Bangladesh.
BSEC, the regulator of the Dhaka Stock Exchange and Chittagong STOCK MARKET, oversees both listed and non-listed companies and many market intermediaries. However, the organisation has only 84 officers to perform their operations.
Alternatively, Bangladesh Bank, which solely regulates the banking sector, have seven to eight thousand persons in employment.
"So, we are powerful but helpless as a regulator," Hossain said.
To make sure accountability and trust on financial statements, BSEC recently realised its long-standing plan to form a Financial Regulatory Council (FRC), he added.
The government established the FRC in 2016 under the Financial Reporting Act with the intention to make sure transparency in financial reports submitted by listed and non-listed companies.
A company's financial statements reflects how well the business enterprise is doing but since most companies in the united states provide false information, investors usually do not trust their statements.
The FRC is wanting to discover why companies keep on with this malpractice and how exactly to fix the problem. Since auditors are appointed by the companies, the chairmen of those organizations can dictate the report.
"So, we want to have auditors appointed by the FRC so that they can work freely," said Mohammad Mohiuddin Ahmed, executive director of the Financial Reports Monitoring Division at the FRC.
Farhad Ahmed, executive director of the BSEC, echoed the same, saying that if listed companies provide good financial reports, it reflects how well the country's currency markets is doing.
"That is why there is no option to the truth for trustworthy financial reports," he said. At the event, the BSEC chairman also revealed the statistics page of the Customer Complaint Address Module (CCAM), an online portal for stock investors to talk about their grievances, to ensure that people could see how many issues had been resolved.
In the last half a year (September to February), 206 complaints were submitted, of which 94.7 %, or 195 complaints, have already been addressed.
The average period of time necessary to settle each complaint is approximately 15 days.
Mahbubul Alam, director general of BASM, Shuvra Kanti Choudhury, managing director of Central Depository Bangladesh, Hasan Imam Rubel, president of Capital Market Journalists Forum, Mohammad Salahuddin Chowdhury, Assistant professor Finance Department of Dhaka University, also spoke at the event.
