Forma # 1.ai - ICAB
Forma # 1.ai - ICAB
Forma # 1.ai - ICAB
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The Bangladesh Accountant January-March 2011 | Vol. 69 No. 40<br />
Quarterly Journal of the Institute of Chartered Accountants of Bangladesh<br />
Vol. 69 No. 40<br />
ISSN 1993-3649<br />
January-March 2011<br />
CAPITAL MARKET :<br />
RISKS & OPPORTUNITIES
c o n t e n t s<br />
EDITORIAL BOARD<br />
Chairman<br />
Akhter Matin Chaudhury FCA<br />
Associate Editor<br />
Harun Mahmud FCA<br />
P : 02 Editorial<br />
P : 03 President’s Desk<br />
P : 05 Institute’s News<br />
ARTICLES<br />
Members<br />
Md. Abdus Salam FCA<br />
Masih Malik Chowdhury FCA<br />
M. Farhad Hussain FCA<br />
Md. Humayun Kabir FCA<br />
Md. Shahjahan Majumder FCA<br />
Amanullah Khan FCA<br />
Fazle Rabbi Mohammed Hasan FCA<br />
Md. Nurul Haque FCA<br />
Kazi Ehsanul Huq FCA<br />
Kanai Lal Saha FCA<br />
Md. Harun-or-Rashid FCA<br />
Md. Akbar Hossain FCA<br />
Md. Moniruzzaman FCA<br />
M. Abu Bakar FCA<br />
Mohammed Jashim Uddin FCA<br />
Abu Muhammed Saiful Islam FCA<br />
Md. Abid Hossain Khan ACA<br />
Kishower Amin ACA<br />
Shafiq Musharrof ACA<br />
Sujit Kumer Das ACA<br />
Zareen Hosein ACA<br />
Chairman – DRC-<strong>ICAB</strong><br />
Chairman – CRC-<strong>ICAB</strong><br />
Member Secretary: Secretary-<strong>ICAB</strong><br />
N I Chowdhury FCA<br />
The Bangladesh Accountant<br />
Quarterly Journal of the Institute of Chartered Accountants of Bangladesh<br />
P : 13<br />
P : 19<br />
P : 22<br />
P : 41<br />
P : 45<br />
P : 49<br />
P : 55<br />
P : 59<br />
P : 63<br />
P : 65<br />
P : 69<br />
Bangladesh Capital Market<br />
Opportunity Still Knocks<br />
- Mr. Ahmed Raihan Shamsi FCA<br />
Avoiding Losses in the<br />
Share Market<br />
- Mr. M. Farhad Hussain FCA<br />
State of the Bangladesh Economy<br />
in Fiscal Year 2010-1011<br />
- Centre for Policy Dialogue (CPD)<br />
Fundamentals to Safeguard<br />
Investment in the Capital Market<br />
- Mr. Biplob Kanti Banik ACA<br />
Capital Market Review<br />
- IDLC Magazine<br />
Some Quotable Quotes<br />
on the Stock Market<br />
Who says Accountants<br />
are Boring People!<br />
- Mr. Sohel Kasem, FCA<br />
Corporate Social<br />
Responsibility (CSR)<br />
- Mr. A Wahab FCA<br />
The Flowering of Kaizen<br />
- (Extract from G4S International)<br />
Opportunities and Challenges for<br />
Adoption of IFRS for SMEs in Bangladesh<br />
- Md. Shahadat Hossain FCA<br />
STUDENTS’ SECTION<br />
Tips for C A Students<br />
- Sanjida Kasem FCA, FCMA<br />
<strong>ICAB</strong> New Curriculum<br />
The Bangladesh Accountant<br />
January-March 2011, Volume: XI, Issue: 01<br />
A Quarterly Journal of<br />
The Institute of Chartered Accountants of Bangladesh<br />
Circular on Examination Structure<br />
and Conversion Criteria<br />
Designed & Printed By : ROOT Marketing Services
EDIT ORIAL<br />
The Perspective Plan and<br />
the Roadmap to Vision 2021<br />
The Institute of Chartered<br />
Accountants (<strong>ICAB</strong>) is the<br />
premier accounting body in<br />
the Country. It is the thought<br />
leader in accounting matters<br />
and is charged with upholding<br />
the highest standards of the<br />
accounting profession in<br />
Bangladesh.<br />
<strong>ICAB</strong> has come a long way<br />
since its inception. The<br />
Institute has produced highly<br />
skilled accountants. The<br />
qualification it offers is highly<br />
prized. The letters ACA and<br />
FCA are a matter of great pride<br />
for all those whose privilege it<br />
is to suffix these to their<br />
names. <strong>ICAB</strong> membership<br />
boasts leaders in every sphere<br />
of the national life of<br />
Bangladesh. The geographical<br />
spread of its membership is<br />
impressive with significant<br />
presences in UK, North<br />
America, the Middle East,<br />
Africa and Asia.<br />
Recently, under a twinning<br />
project, the syllabi and<br />
examination system of the<br />
Institute have been elevated to<br />
that of the Institute of<br />
Chartered Accounts in<br />
England and Wales, the<br />
premier global accounting<br />
body. It is a matter of great<br />
pride that the qualifications of<br />
those who pass under the new<br />
system will be recognised in<br />
England and Wales.<br />
The quarterly Journal of the<br />
<strong>ICAB</strong> does an admirable job of<br />
disseminating professional<br />
information to its members<br />
and keeping them abreast of<br />
the latest developments in the<br />
accounting profession. The<br />
publication has to keep pace<br />
with changing times and<br />
evolve to fulfil its onerous<br />
responsibilities. It must remain<br />
relevant to its readership at all<br />
times. The Journal should not<br />
only inform and educate but<br />
also be an attractive and<br />
interesting purveyor of its<br />
contents. It is in this spirit that<br />
the Journal sports a new look.<br />
The contents of the Journal<br />
have also been planned to<br />
cater to the needs of a broad<br />
range of professional interest.<br />
It should also be a medium for<br />
debate and a melting pot of<br />
opinions and views on matters<br />
of professional interest and<br />
interpretation. A dearth of<br />
material, however, often<br />
impedes the ideal mix.<br />
Members are therefore<br />
requested to contribute<br />
material for future issues. It is<br />
also intended that the Journal<br />
should appeal to wider<br />
readership including corporate<br />
bodies, executives and<br />
decision makers. A<br />
subscription drive to enrol<br />
such stakeholders will be<br />
conducted soon. It is<br />
particularly intended that<br />
students of chartered<br />
accountancy would find the<br />
Journal useful in their<br />
pursuance of qualification.<br />
Towards this end, each issue<br />
will contain a special section<br />
for students. We hope this will<br />
encourage them to subscribe<br />
to it. As a further incentive, the<br />
Journal is being offered to<br />
students at a very special rate.<br />
The Editorial Board hopes that<br />
you will enjoy reading the<br />
Journal and continue to<br />
benefit from it. Your feedback<br />
would be appreciated.<br />
Akhter M Chaudhury<br />
Chairman, Editorial Board<br />
02<br />
January - March 2011<br />
The Bangladesh Accountant
From the Desk of the President<br />
Focusing on Members<br />
“The Accountants,” <strong>ICAB</strong>’s<br />
quarterly journal has<br />
undergone a makeover and<br />
adopted a new look with the<br />
current issue. Credit goes to<br />
the Editorial Board Committee<br />
for the initiative. I thank the<br />
committee for regularly<br />
providing a space in the<br />
journal from now on for the<br />
<strong>ICAB</strong> President.<br />
<strong>ICAB</strong> was established under<br />
the Bangladesh Chartered<br />
Accountants Order 1973 as a<br />
supreme and sovereign<br />
regulator of the accounting<br />
profession of the accountants.<br />
Its membership has grown<br />
from 78 to more than 1400<br />
over almost four decades. This<br />
figure includes 34 female<br />
“<br />
Every chartered accountant has the responsibility<br />
members. As the institute and<br />
its membership grow, we have<br />
to work more effectively as a<br />
body to address the needs of<br />
our members and<br />
communicate with each other<br />
to strengthen our profession.<br />
As president, my first task was<br />
to review and form<br />
committees for 2011. Through<br />
review, Professional<br />
Development committee for<br />
Women was merged with<br />
Professional Development<br />
committee of the Council. In<br />
addition, five new<br />
non-standing committees were<br />
formed for professional<br />
advancement. Each committee<br />
is chaired by a member of the<br />
council. The chairman will be<br />
responsibile to ensure that<br />
committee views are<br />
ascertained on key policy<br />
issues and clearly<br />
communicated to the council.<br />
Addition of new committees<br />
increases workload of the<br />
secretariat. We are working to<br />
overcome this limitation by<br />
ensuring that the committee<br />
chair and members work more<br />
proactively and regularly<br />
follow-up with the secretariat.<br />
Every chartered accountant<br />
has the responsibility to<br />
uphold the integrity of our<br />
profession. We as<br />
professionals have to be<br />
prompt but transparent in<br />
sharing information with<br />
<strong>ICAB</strong>, our clients, our<br />
prospective clients as well<br />
other stakeholders. Quality<br />
Assurance Board (QAB), a<br />
committee and monitoring cell<br />
of <strong>ICAB</strong> is working to identify<br />
areas of improvements of<br />
member firms to ensure<br />
adequate transparency in<br />
information sharing. Our<br />
Investigation Disciplinary<br />
committee is contributing to<br />
ensure that our members are<br />
held to the highest standards<br />
of professionalism and<br />
integrity.<br />
My goal is to strengthen<br />
<strong>ICAB</strong>’s capacity at par with<br />
to uphold the integrity of our profession”<br />
any other professional<br />
accounting body globally. In<br />
order to do so, <strong>ICAB</strong> has to be<br />
managed in a more<br />
businesslike manner.<br />
Currently, the secretariat are<br />
not able to fully serve the<br />
needs of our members due to<br />
lack of resources and effective<br />
The Bangladesh Accountant January - March 2011 03
management and<br />
communication. There are<br />
many members who do not feel<br />
that the Institute is meeting<br />
their needs effectively. We are<br />
striving to improve<br />
communications between the<br />
secretariat , members and<br />
council members. We are also<br />
using technology including<br />
e-mail and SMS to enhance<br />
communication with<br />
members.Till now most of our<br />
communications with members<br />
has been by way of paper,<br />
which is expensive and time<br />
consuming and often becomes<br />
a challenge to deliver timely.<br />
The solution is to go paperless<br />
and move to electronic<br />
communications.<br />
Unfortunately, not all members<br />
and particularly those outside<br />
Bangladesh, have furnished<br />
their email addresses to <strong>ICAB</strong>. I<br />
urge all resident and<br />
non-resident members to send<br />
their email addresses, which<br />
could also be included in the<br />
latest members’ handbook. I<br />
respect the decision of any<br />
member who may prefer<br />
traditional paper<br />
communication and they<br />
should inform the secretariat<br />
about their option of choice.As<br />
chairman of the Information<br />
Communication Technology<br />
(ICT) committee in 2010, I<br />
introduced SMS<br />
communication with members<br />
regarding meetings and<br />
seminars.<br />
Any member not currently<br />
availing this facility, if is<br />
interested in doing so can<br />
forward his/ her mobile number<br />
to <strong>ICAB</strong> to join the SMS list. If a<br />
member does not wish to<br />
publish his/ her contact<br />
information in the members’<br />
handbook, s/he should inform<br />
<strong>ICAB</strong> about his/her decision in<br />
the correspondence.<br />
<strong>ICAB</strong> currently has a website to<br />
which the ICT committee has<br />
brought some improvement. An<br />
ICT sub committee is<br />
coordinating the effort to bring<br />
more change to the design and<br />
introduce new content to the<br />
website. I will provide a more<br />
detailed update to our members<br />
at a later date on digital<br />
technology based initiatives of<br />
<strong>ICAB</strong>.<br />
In my year in office, I will give<br />
my best effort to serve our<br />
members and enhance<br />
communications<br />
and<br />
information flow among <strong>ICAB</strong>,<br />
its members and other<br />
stakeholders. As capacity of<br />
<strong>ICAB</strong> is strengthened, the office<br />
bearers, council members and<br />
secretariat can support our<br />
members to cope with<br />
challenges of the profession in<br />
an information-based society.<br />
Ms. Parveen Mahmud<br />
President, <strong>ICAB</strong><br />
04<br />
January - March 2011<br />
The Bangladesh Accountant
Institute’s News<br />
In This Section<br />
P:06 CPD Seminar<br />
P:09 Professional Matters<br />
P:11 Celebrations
Uniform Accounting a must for Energy Sector<br />
Commerce Minister at <strong>ICAB</strong> Seminar<br />
“Accountability of the<br />
energy sector should be increased<br />
and we need a uniform<br />
accounting system to ensure<br />
greater accountability of the<br />
sector. This is a complex issue<br />
because we are generating<br />
electricity using different types of<br />
fuel and selling the electricity at<br />
different rates to different users.<br />
That is why we need a uniform<br />
system of accounting” said the<br />
Chief Guest Mr. Muhammad<br />
Faruk Khan MP, Hon’ble<br />
Commerce Minister, GoB, at a<br />
CPD Seminar on Introduction of<br />
Uniform Energy Accounting in<br />
Bangladesh organized by the<br />
Institute of Chartered Accountants<br />
of Bangladesh (<strong>ICAB</strong>) on 22<br />
January 2011.<br />
Mr. Mesbah Ul Alam, Secretary,<br />
Ministry of Environment and<br />
Forests, GoB, was present as<br />
Special Guest.<br />
Mr. K Z Islam FCA, Past<br />
President, <strong>ICAB</strong>, conducted the<br />
seminar as Session Chairman.<br />
Dr. Jamaluddin Ahmed FCA,<br />
Council Member & Immediate<br />
Past President, <strong>ICAB</strong>, presented<br />
the keynote paper.<br />
Mr. Muhammad Faruk Khan MP,<br />
Hon’ble Commerce Minister,<br />
GoB, said that the power sector is<br />
expanding very fast and a large<br />
amount of electricity is going to<br />
be added to the national grid in<br />
the near future. As such there may<br />
be problems with the accounting<br />
of the sector if there is no uniform<br />
system in place. Moreover, there<br />
are subsidies and other issues<br />
involved in energy accounting. A<br />
clear accounting system for this<br />
sector is needed.<br />
Ms. Parveen Mahmud FCA,<br />
President of the Institute, in her<br />
address of welcome said that the<br />
theme of the seminar is very<br />
important in the context of the<br />
current state of the power and<br />
energy sector in the Country. “We<br />
are holding this seminar at a time<br />
when the Government of<br />
Bangladesh is working to utilize<br />
all its resources to achieve its<br />
vision to raise Bangladesh to a<br />
middle income economy. The<br />
President expressed <strong>ICAB</strong>’s<br />
appreciation of Bangladesh<br />
Energy and Regulatory<br />
Commission’s efforts to introduce<br />
uniform energy accounting<br />
practices. She also welcomed the<br />
Commission to collaborate with<br />
<strong>ICAB</strong> to introduce such uniform<br />
accounting practices.<br />
Mr. Mesbah Ul Alam in his<br />
speech said that Energy<br />
Accounting System is a process<br />
for recording, tracking and<br />
reporting the amount and costs of<br />
the various consumables used by<br />
commercial scale facilities. It<br />
involves the establishment of a<br />
data base for storing historical<br />
information on electricity, natural<br />
gas, other fuels, water etc. He<br />
declared that one cannot manage<br />
what one cannot measure.<br />
Accountants should propose a<br />
system of measurement that<br />
eliminates inconsistencies and<br />
balances limited resources with<br />
unlimited demand. Such a system<br />
should help regulators and<br />
administrators take better<br />
decisions. Successful<br />
development of the sector is<br />
predicated upon a reliable and<br />
rational accounting system and<br />
accountants have the capacity to<br />
help management to optimize<br />
resource utilisation.<br />
Dr. Jamaluddin Ahmed presented<br />
the paper in which he succinctly<br />
described the Information needs<br />
for Public Service Regulation,<br />
Uniformity in Accounting for<br />
Energy, Core issues in Uniform<br />
Energy Accounting, Scope of a<br />
Regulatory Accounting System<br />
and Development of Uniform<br />
Energy Accounting in Bangladesh.<br />
Mr. K Z Islam said “There is no<br />
denying that a uniform system of<br />
energy accounting is needed.<br />
There are discrepancies and we<br />
have a lot of problems with<br />
energy and its accounting and<br />
auditing. It is a fact, though, that it<br />
is very difficult to have a uniform<br />
accounting system in the energy<br />
sector as energy in Bangladesh is<br />
produced from many different<br />
sources”.<br />
Mr. Md. Shahadat Hossain FCA,<br />
Vice President, <strong>ICAB</strong> thanked<br />
everyone for participating in the<br />
seminar and for sharing their<br />
views on the topic.<br />
06<br />
January - March 2011<br />
The Bangladesh Accountant
An IFRC can ensure proper<br />
performance of CA Firms<br />
Dr. AB Mirza Md Azizul Islam<br />
Dr. AB Mirza Md Azizul<br />
Islam, Former Adviser for the<br />
Ministry of Finance and Planning<br />
to the Caretaker Government of<br />
Bangladesh urged <strong>ICAB</strong> members<br />
to support the initiative to form a<br />
financial reporting council which<br />
would ultimately help enhance<br />
the discipline of the CA firms.<br />
“Although the initiative to form an<br />
independent financial reporting<br />
council has been taken a long<br />
ago, it is yet to be materialized<br />
because of resistance by some<br />
vested interest”, said Dr. Azizul<br />
Islam, who was also the<br />
Chairman of Capital Market<br />
regulator Securities and Exchange<br />
Commission (SEC) speaking as the<br />
Chief Guest at a CPD Seminar on<br />
the Role of Capital Markets and<br />
Chartered Accountants held on<br />
Monday, 21 March 2011 at <strong>ICAB</strong><br />
Auditorium in Dhaka.<br />
He said that some Chartered<br />
Accountants (CA) firms have<br />
failed to perform their duties<br />
appropriately.<br />
“In the past, some CA firms failed<br />
to perform their duties<br />
appropriately. In most cases, <strong>ICAB</strong><br />
failed to take proper measures<br />
against those errant firms as there<br />
might be some conflict of interest<br />
involved,” said Mirza Aziz, urging<br />
<strong>ICAB</strong> members to support the<br />
initiative to form a financial<br />
reporting council.<br />
About the stock market Mr. Aziz<br />
said “Stock market analysts<br />
identified deep collusion among<br />
market stakeholders as a major<br />
setback that distorts that capital<br />
market and takes it to dizzy ling<br />
heights in signs of high volatility.<br />
Ms. Parveen Mahmud FCA,<br />
President-<strong>ICAB</strong> in her address of<br />
welcome said capital market is a<br />
market for securities, where<br />
business enterprises can raise<br />
long-term funds.<br />
Chartered Accountants work in all<br />
fields of business and finance.<br />
Some are engaged in public<br />
practice work, others work in the<br />
private sector and some are<br />
employed by government bodies.<br />
Chartered Accountants play the<br />
role of auditor to the company<br />
tapping the capital markets. They<br />
can also play the role of an<br />
advisor to the company tapping<br />
the capital markets. They are<br />
working for SEC or Stock<br />
Exchanges and play regulatory<br />
role. In fact they have a lot of<br />
roles to play in the field of capital<br />
market.<br />
We need to strengthen corporate<br />
governance in listed companies,<br />
analyze their performance,<br />
identify their weaknesses and take<br />
responsible measures. We are<br />
genuinely embarrassed when<br />
fingers are pointed towards<br />
accounting professionals for<br />
distorting market information. We<br />
have to be more responsible in<br />
our professional services. In this<br />
regard, the Quality Assurance<br />
Board monitoring cell and the<br />
Investigation Disciplinary<br />
Committee of <strong>ICAB</strong> are<br />
determined to ensure that its<br />
members look beyond self interest<br />
to uphold the profession’s<br />
integrity.<br />
Past President Mr. A K<br />
Chowdhury FCA conducted the<br />
session as Session Chairman. A<br />
lively floor discussion took place<br />
after presenting the theme paper<br />
by Mr. Ferdouse Ahmed Khan<br />
FCA. Mr. Md. Abdus Salam FCA,<br />
VP, <strong>ICAB</strong> said that CA firms can<br />
play different roles in the capital<br />
market. They can perform the<br />
duties of the regulator as well as<br />
adviser for the companies. He<br />
thanked everyone to share their<br />
views through this seminar while<br />
offering vote of thanks at the end<br />
of the seminar.<br />
The Bangladesh Accountant January - March 2011 07
Management Accountants, Auditors have<br />
to be more conversant with IT, Internet<br />
- President, <strong>ICAB</strong><br />
The Institute of Chartered<br />
Accountants of Bangladesh (<strong>ICAB</strong>)<br />
organized a CPD Seminar on “IT<br />
Enabled Systems: Opportunities<br />
and Challenges for Assurance<br />
Professionals” on Thursday, 31<br />
March 2011 at <strong>ICAB</strong> Auditorium,<br />
Chartered Accountant Bhaban,<br />
100 Kazi Nazrul Islam Avenue,<br />
Kawran Bazar, Dhaka-1215.<br />
Mr. Mustafa Jabbar, President,<br />
Bangladesh Computer Samity<br />
graced the occasion as Chief<br />
Guest.<br />
Mr Abbas Uddin Khan FCA, Past<br />
President, <strong>ICAB</strong> conducted the<br />
Seminar as Session Chairman.<br />
Mr. Aniruddha Neogi, FCA (ICAI),<br />
CISA, CGEIT, CRISC Director,<br />
Monitoring Evaluation & Internal<br />
Audit, ICDDR,B presented the<br />
keynote paper.<br />
Parveen Mahmud FCA, President,<br />
<strong>ICAB</strong> in her address of welcome<br />
said that our vision is to build a<br />
Digital Bangladesh within 2021.<br />
So it is essential to enrich the ICT<br />
sector through developing<br />
software industry and IT services.<br />
She said management<br />
accountants, auditors and<br />
academicians will become more<br />
knowledgeable and conversant in<br />
the design, operation and control<br />
of accounting information systems<br />
through increased use of<br />
Information Technology and<br />
Internet.<br />
Auditors should update<br />
themselves to evaluate and<br />
safeguard assets and maintain data<br />
integrity through computer<br />
systems. To properly evaluate the<br />
potential risks, accountants and<br />
auditors must be familiar with<br />
current and emerging information<br />
technologies, she added.<br />
The <strong>ICAB</strong> President said, it is<br />
thought-provoking whether we<br />
are providing our students and<br />
future accounting professionals<br />
with a framework to understand<br />
the need for IT security and to<br />
address the threats.<br />
In <strong>ICAB</strong> and in firms, necessary<br />
computer facilities are not<br />
available for all students and<br />
trainees as required. So <strong>ICAB</strong> has<br />
included theoretical programme<br />
for students’ syllabuses for IT<br />
knowledge and IT application that<br />
have been written by ICAEW<br />
following IFAC requirements and<br />
agreed by <strong>ICAB</strong>, she added.<br />
Mr. Mustafa Jabbar in his speech<br />
thanked <strong>ICAB</strong> for entering the<br />
digital era and appreciated the<br />
creative role in the ICT sector. He<br />
said Information Technology is<br />
the key to development. Digital<br />
Bangladesh should not be only for<br />
a certain group of people or a<br />
section of society. It should<br />
benefit all.<br />
As one of the founders of<br />
Bangladesh Computer Samity<br />
(BCS), Mr. Jabbar highlighted the<br />
activities of BCS. He said BCS is<br />
playing a leading role in<br />
flourishing ICT and popularising<br />
the use of computers in rural<br />
areas through motivation. He said<br />
<strong>ICAB</strong> has gone one step ahead in<br />
the society by introducing ICT in<br />
its exam system. This effort will<br />
not only benefit <strong>ICAB</strong>, but also<br />
others concerned. The seminar<br />
ended with a vote of thanks.<br />
08<br />
January - March 2011<br />
The Bangladesh Accountant
Orientation Programme for Teachers<br />
and Students on New Curriculum<br />
“This is a golden scope to be<br />
the member of ICAEW by<br />
attending the new syllabus. We<br />
all should take this opportunity<br />
and maintain the quality of the<br />
syllabus related to ICAEW”, Ms.<br />
Parveen Mahmud FCA was urging<br />
in the Orientation Programme<br />
while delivering her address of<br />
welcome. She said that new <strong>ICAB</strong><br />
curriculum based on ICAEW<br />
curriculum has already been<br />
introduced from January 2010<br />
and examinations under new<br />
curriculum were started from<br />
May-June 2010. She also<br />
informed the audience that The<br />
Institute of Chartered Accountants<br />
of Bangladesh (<strong>ICAB</strong>) and the<br />
Institute of Chartered Accountants<br />
in England and Wales (ICAEW)<br />
have been rigorously working to<br />
strengthen the accounting<br />
profession for compliance and<br />
practices of the standards and<br />
codes in the corporate sector. In<br />
October 2009 the <strong>ICAB</strong> signed a<br />
Memorandum of Understanding<br />
(MOU) with the ICAEW.<br />
Mr. Md. Abdus Salam FCA, Vice<br />
President, <strong>ICAB</strong> elaborately<br />
explained the new syllabus by<br />
showing power point. He said<br />
that this is the seven syllabus we<br />
have started implementing since<br />
January 2010. It is very much<br />
necessary to disseminate this kind<br />
of orientation, he added. Mr.<br />
Salam said that a new curriculum<br />
and examination system<br />
introduced by the Institute has<br />
been highly applauded by the<br />
corporate sector of the country<br />
and opined as parallel to the<br />
curriculum of world class<br />
accounting bodies like the<br />
Institute of Chartered Accountants<br />
in England and Wales (ICAEW).<br />
Mr. N I Chowdhury FCA,<br />
Secretary of the Institute said that<br />
<strong>ICAB</strong> is contributing profusely to<br />
establishing an enabling<br />
environment for a transparent and<br />
accountable financial culture. He<br />
said that the new <strong>ICAB</strong><br />
Curriculum and the examination<br />
system which he predicted will<br />
elevate the status of <strong>ICAB</strong> to the<br />
rank of the world class accounting<br />
bodies. This programme was<br />
conducted by Mr. A S M Nayeem<br />
FCA.<br />
The Bangladesh Accountant January - March 2011 09
A delegation of the Institute of Chartered Accountants<br />
of Bangladesh (<strong>ICAB</strong>) led by Ms. Parveen Mahmud<br />
FCA, President, <strong>ICAB</strong> called on Dr. Mohammad<br />
Tareque, Finance Secretary at Bangladesh Secretariat<br />
on 10 January, 2011. She apprised the Secretary about<br />
the various activities and recent developments of the<br />
Institutes particularly about MoU and some other<br />
activities under this.<br />
She highlighted the role of Chartered Accountants in<br />
the financial scenario of the country.<br />
Dr. Mohammad Tareque, Finance Secretary, GoB, (extreme left) is<br />
seen with <strong>ICAB</strong> delegation<br />
The Secretary, Ministry of Finance gave a patient<br />
hearing to <strong>ICAB</strong> delegates and assured all possible<br />
cooperation. The delegation included Mr. Md. Shahadat<br />
Hossain FCA, Mr. Nasim Anwar FCA, Vice president,<br />
<strong>ICAB</strong> and Ms Suraiya Zannath Kahn FCA, Senior<br />
Financial Management Specialist, The World Bank.<br />
A Delegation of the Institute of Bangladesh (<strong>ICAB</strong>)<br />
made a courtesy call with Mr. A S M Alamgir Kabir,<br />
Chairman, Power Development Board (PDB) at his<br />
office on 01 March, 2011. Mr. Abbas Uddin Khan<br />
FCA, Member Council & Past President led the <strong>ICAB</strong><br />
delegation which included Mr. Md. Abdus Salam<br />
FCA, Vice President, Mr. Md. Abu Taleb Talukder<br />
FCA and Mr. AKM Aminul Hoque FCA,<br />
Members-<strong>ICAB</strong>, The delegation informed the PDB<br />
Chairman that <strong>ICAB</strong> can play a very useful role if<br />
opportunities are offered. <strong>ICAB</strong> could provide<br />
professional services to PDB in designing a control<br />
device in collaboration with the PDB authority to<br />
reduce the system loss.<br />
Mr. Md. Faszlul Hoque, Member Finance, PDB was<br />
also present at the meeting.<br />
A <strong>ICAB</strong> delegation led by Mr. Abbas Uddin Khan FCA, Member<br />
Council & Past President, <strong>ICAB</strong> made a call with Chairman, PDB<br />
Ms. Parveen Mahmud FCA, President, <strong>ICAB</strong> giving a<br />
short brief on the proposals were made during the<br />
meeting time<br />
A delegation of the Institute of Chartered Accountants of<br />
Bangladesh (<strong>ICAB</strong>) made a courtesy call on Md. Ghulam<br />
Hussain, Secretary, Ministry of Commerce, GoB at his office on<br />
23 March, 2011. The <strong>ICAB</strong> delegation was led by Ms. Parveen<br />
Mahmud FCA, President, <strong>ICAB</strong>. Other members of the <strong>ICAB</strong><br />
delegation were Mr. Md. Abdus Salam FCA, Mr. Md. Shahadat<br />
Hossain FCA, Vice Presidents, <strong>ICAB</strong> and Mr. N I Chowdhurey<br />
FCA, Secretary-<strong>ICAB</strong>.<br />
The <strong>ICAB</strong> delegation informed the Secretary, that as a member<br />
of different International and Regional Accounting Bodies, <strong>ICAB</strong><br />
is playing a very vital role to improve the accounting and<br />
auditing standards, corporate management and governance,<br />
financial reporting standards and ethical issues related there<br />
with in Bangladesh.<br />
Mr. Md. Showkat Ali Waresi Joint Secretary, MOC and Mr. ATM<br />
Murtozaa Reza Chowdhury, NDC, Additional secretary, MOC<br />
were also present at the meeting.<br />
10<br />
January - March 2011 The Bangladesh Accountant
A two member team comprising Dr. Afra Saijad,<br />
Head of Education, ACCA Pakistan and Ms.<br />
Mohua Rashid, Country Manager, ACCA Bangladesh<br />
called on the <strong>ICAB</strong> President, Ms. Parveen<br />
Mahmud FCA on 7 February, 2011.<br />
The Meeting was focused on “Perspective of<br />
ACCA’s support to <strong>ICAB</strong> in the areas of tuition<br />
and teachers training”. They discussed ways and<br />
means of supplementing the existing training<br />
facilities for <strong>ICAB</strong> students.<br />
A Meeting between <strong>ICAB</strong> and ICAEW representatives<br />
was held on 10 March, 2011 at <strong>ICAB</strong><br />
Mini Conference Hall. Some important issues<br />
were discussed in the meeting. The meeting was<br />
discussed about the working plan of <strong>ICAB</strong> and<br />
ICAEW to strengthen <strong>ICAB</strong>V capacity building in<br />
Technical and Learning and profession development.<br />
The annual picnic of DRC, <strong>ICAB</strong>, was held<br />
on 14 January 2011. It was all fun and<br />
pleasure for about 400 picnickers who were<br />
enthralled by the natural beauty of the<br />
venue-“Rangamatia Water Front” located<br />
some 45 km from Dhaka at Gazipur.<br />
On the eve of the picnic, Ms Parveen<br />
Mahmud FCA, President <strong>ICAB</strong>, delivered a<br />
message in which she said “<strong>ICAB</strong> Picnic is<br />
essential recreation and serves as a happy<br />
and joyous occasion for all of us. It promotes<br />
fellowship and social interaction amongst us<br />
and our families which goes a long way<br />
towards strengthening our professional<br />
bonds. I am sure the scenery of “Rangamatia<br />
Water Front” will be greatly invigorating and<br />
will refresh us with a new zeal of life”.<br />
A <strong>ICAB</strong> team headed by Mr. Md. Shahadat Hossain FCA, paid glowing tributes for the Martyrs by placing wreaths at Central<br />
Shahed Minar on 21st February and at National Smriti Shoudha on 26th March, 2011 respectively<br />
The Bangladesh Accountant January - March 2011 11
Bangladesh Capital Market<br />
Opportunity Still Knocks<br />
Ahmed Raihan Shamsi FCA<br />
“It’s a Gilded Egg!” somebody<br />
shouts and everyone rushes on<br />
investing in the share market<br />
hoping to multiple their<br />
investment in a short time. What<br />
really made them invest with such<br />
zest and cause an amazing growth<br />
figure of 81.47% in DSE general<br />
index in 2010?<br />
In 2010 alone, the share market of<br />
Bangladesh has experienced BDT<br />
4,009 Bn annual turnover, BDT<br />
3,508 Bn market capitalization,<br />
52.2 Mn trade and 3.2 Mn BO<br />
accounts instigating the most ever<br />
vibrant period of share market in<br />
the history of Bangladesh . This is<br />
not just some “one fine morning”<br />
story. The market has been<br />
developing immensely in last few<br />
years and particularly in 2010,<br />
some added factors triggered this<br />
upsurge. If we look back, the<br />
market capitalization has<br />
increased significantly over the<br />
years; the market cap to GDP<br />
ratio stood at 50.8 % in 2010<br />
from 5.18% in 2005 . This is too<br />
good in too short span of time to<br />
sustain.<br />
DSE Market Capitalizaon over the Years<br />
50%<br />
45%<br />
40%<br />
35%<br />
30%<br />
25%<br />
20%<br />
15%<br />
10%<br />
5%<br />
0%<br />
USD mn<br />
45000<br />
40000<br />
35000<br />
30000<br />
25000<br />
20000<br />
15000<br />
10000<br />
5000<br />
0<br />
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11<br />
DSE M Cap<br />
Market Cap as % of GDP<br />
Note: GDP for 2009-10 is considered for 2010-11 Market Cap. as percentage of GDP calculaon<br />
As of March 02, 2011 Market Cap of DSE is 38.9% of the Bangladesh’s GDP (2009-10)<br />
The Bangladesh Accountant January - March 2011 13
DSE actually has outperformed<br />
other markets in terms of growth<br />
& performance in recent years. If<br />
DSE is put in a comparative<br />
analysis table (Graph-2), it is<br />
evident that this unusual growth<br />
created anomaly in<br />
the market, especially in the year<br />
2010. Reflection of this can be<br />
easily traced to the lower<br />
dividend yield percentage and<br />
higher average price/book value<br />
ratio compared to other major<br />
markets of Asia. This growth did<br />
not continue for long; the fall<br />
came and it came hard. The<br />
sudden market crash came like a<br />
bolt from the blue for everyone<br />
involved.<br />
DSE Relave Performance (Rebased)<br />
• Lack of effective monitoring<br />
from market regulators<br />
encouraged the market to take<br />
risky bullish trend without<br />
senses around.<br />
Why such huge rise &<br />
massive fall?<br />
The unusual growth experience<br />
was not caused by one single<br />
force. These varied from a range<br />
of some basic economic theory all<br />
the way to the mindset of the low<br />
volume Retail Investors.<br />
• Basic equation of demand<br />
supply created the bubble in<br />
the market. Demand of shares<br />
increased with the supply<br />
lagging far behind. This is evident<br />
from the oversubscription<br />
status of any IPO floated in the<br />
market.<br />
• Merchant banks invested<br />
heavily in the market as they<br />
had the knowledge and<br />
opportunity to do fundamental<br />
and technical analysis to gain<br />
an upper hand from the retail<br />
investors. This knowledge<br />
allowed them to make<br />
abnormally high profits and<br />
this is reflected in the hefty<br />
profit figures of 2010.<br />
• Commercial banks reduced<br />
the interest rate on fixed and<br />
savings deposit from 14-15%<br />
in 2008 to 9% in 2010 . Also<br />
Tax was imposed on Govt.<br />
Saving certificates. This forced<br />
the general investors to look<br />
for an alternative source and<br />
eventually ending up investing<br />
in the share market which was<br />
showcased to them as much<br />
faster money making waysimilar<br />
somewhat to a Casino!<br />
• Almost all Private Commercial<br />
Banks were focused on<br />
establishing their Merchant<br />
Bank Unit and billions of taka<br />
were invested to gain “quick<br />
return” from a heated market.<br />
Even industrial loans were<br />
invested in share market which<br />
went on for some time beyond<br />
the radar of Bangladesh Bank,<br />
SEC and other regulators.<br />
• Investment of black money<br />
was encouraged in the capital<br />
market during the Annual<br />
14<br />
January - March 2011<br />
The Bangladesh Accountant
Budget for the sake of so called<br />
economic development of<br />
country.<br />
• Government withdrew the<br />
imposition of tax on individual<br />
investment in share market<br />
after the budget. Tax on<br />
Institutional investment was<br />
kept at insignificant level.<br />
• Brokerage houses increased<br />
Round Table from The Daily<br />
Prothom Alo, 30-1-2011 their<br />
branch offices throughout the<br />
country to facilitate the<br />
entrance of new retail<br />
investors into the market. 238<br />
brokerage houses of DSE<br />
opened 590 branches in 32<br />
districts. Most of the new<br />
entrants lack the basic<br />
knowledge of share market<br />
and only has the intention to<br />
make “quick money”. The<br />
total no of BO accounts stood<br />
at 3.2 mn at the end of 2010<br />
with a 45% growth in 2010<br />
alone.<br />
• 27 out of 35 “shares split” had<br />
abnormal gain (ranging from<br />
5% to 70%) for almost no<br />
reason. Investors went for<br />
share purchase whenever there<br />
was news for share split. No<br />
concern was raised by any<br />
responsible corners.<br />
• 26 out of 32 shares<br />
dematerialized had abnormal<br />
return (ranging from 5% to<br />
304%); this also led to<br />
unnecessary hike in price.<br />
• 18 new IPOs were listed<br />
during 2010 with a total of<br />
BDT 11,700 Mn in public<br />
offering. This has given the<br />
stock market an organic<br />
growth by increasing the<br />
supply side and depth.<br />
• 23 companies raised BDT<br />
28,194 Mn through right share<br />
issue in 2010. Abnormal gain was<br />
observed among 11 shares<br />
(ranging from 11% to 58%)<br />
From all these sources, lot of<br />
money got injected into the<br />
Capital Market, and obvious result<br />
was too much money was chasing<br />
too few already overpriced shares<br />
in the market. The stock market<br />
crossed the threshold in 2010<br />
where it could no longer sustain.<br />
Merchant banks, Brokerage<br />
houses, Asset management<br />
companies and high net worth<br />
investors - everyone realized this<br />
and went into securing their<br />
investment in Q4 2010. Sell side<br />
started to gain momentum in the<br />
market. SEC and Bangladesh<br />
bank, even though realizing the<br />
overheated state of the market<br />
much earlier started taking strict<br />
measures when profit booking has<br />
already started rolling in the<br />
market. SEC took some restrictive<br />
measures by reducing the margin<br />
loan ratio and the individual and<br />
Merchant Bank credit limit.<br />
Bangladesh Bank went hard on<br />
the banks regarding their<br />
exposure in the capital market. It<br />
also increased the CRR from 5.5<br />
to 6% to reduce the money<br />
supply . All these measures<br />
transmitted a red alert signal in<br />
the minds of the retail investors<br />
resulting into massive panic sales<br />
by the investors.<br />
The Challenges faced by<br />
our Capital Market<br />
1.Supply constraints: Bangladesh<br />
has only 219 equity shares traded<br />
in the market. Whereas our<br />
neighboring countries have a<br />
good no of equity shares traded in<br />
the market like India has 3751,<br />
Pakistan 599, Srilanka 243,<br />
Indonesia 406, Vietnam 372. This<br />
supply side constraint generates<br />
excess liquidity problem and<br />
enhances the scope of price<br />
manipulation in the market.<br />
2.Rumor based investment<br />
decision: At present, the retail<br />
investors of our country lack<br />
systematic and fundamental based<br />
analytic investment process. They<br />
depend mostly on market rumors<br />
for investment. As a result, all the<br />
retail investors behave illogical<br />
and chase a certain company’s<br />
share based on rumors. Some<br />
deep pocket syndication<br />
reportedly spread rumors as part<br />
of their game.<br />
3.Dominance of retail investors:<br />
The retail investors of our capital<br />
market comprise of 70% to 80%<br />
of the total market capitalization.<br />
This percentage is much lower in<br />
other developed markets of the<br />
world. Ratio of Institutional to<br />
Retail investor needs to be<br />
increased as Institutional investors<br />
bring stability through non<br />
speculative long term<br />
investments.<br />
4.Coordination among<br />
regulators: SEC, Bangladesh<br />
Bank, Ministry of Finance and<br />
other related stake holders did not<br />
have enough coordination<br />
towards any given policy. This<br />
lack of coordination sometimes<br />
gives misleading indications to<br />
the market. Better management of<br />
the capital market in pace with<br />
global standards will not be<br />
possible without the coordinated<br />
efforts of the regulators.<br />
5.Debt market: Our country does<br />
not have an established secondary<br />
debt /bond market. Due to this,<br />
the companies are unable to fund<br />
their short term requirements. The<br />
capital market can be made more<br />
vibrant and lucrative if this facility<br />
can be incorporated.<br />
6.Existence of Syndicates: Our<br />
capital market has some deep<br />
pocket investor syndicates (often<br />
termed as ‘bull cartels’) who<br />
manipulates the market in their<br />
The Bangladesh Accountant January - March 2011 15
favor. These large fund holding<br />
investors manipulate the market<br />
through price inflation by rumor<br />
mongering after collecting a<br />
particular share at low price levels<br />
and religiously follow pump and<br />
dump strategy.<br />
The Brighter Side of the<br />
Story: Opportunities ahead<br />
of us<br />
1.Confidence: Confidence of the<br />
investor is still prevalent in the<br />
market as IPOs are still of<br />
oversubscribed. This entails the<br />
necessity to transmit the<br />
confidence among the investors<br />
by SEC and stock exchanges in<br />
the secondary market as well.<br />
2.Scope of Investment: There are<br />
a lot of shares with good PE ratio,<br />
historical lowest market price and<br />
good Net Asset Value (NAV).<br />
These factors all indicate that<br />
there is good investment<br />
opportunity. There are people<br />
develop the infrastructure of the<br />
country. Power and transportation<br />
sectors have been given priority.<br />
Padma bridge, Bangabandhu<br />
bridge and various power plants<br />
will be built and these projects<br />
require a lot of fund. Capital<br />
market can facilitate the funding<br />
with various types of securities<br />
and instruments issued.<br />
5.Book building: This procedure<br />
is a tested and accepted price<br />
discovery method in the<br />
developed capital markets of the<br />
world. It has received some<br />
Fixed Income Fund (FBFIF).<br />
Decisions like this will definitely<br />
improve the stability of the<br />
market. As of December 2010,<br />
the market cap of mutual funds<br />
stands at 1.45 % , which is<br />
significantly lower in terms of<br />
other Asian markets. Mutual funds<br />
are managed by expert fund<br />
managers and they usually buy<br />
shares at bargain (undervalued)<br />
price levels. Hence, in a bear<br />
market, they boost up the demand<br />
for strong fundamental shares and<br />
helps the market stabilize. We<br />
need more mutual funds in the<br />
“Emotions and habits play a vital role<br />
in the investment process”<br />
who did not consider capital<br />
market as their investment<br />
opportunity. These people can<br />
direct some portion of their<br />
savings in this market and gain<br />
profit.<br />
3.Implementation of Basel II:<br />
Banks have to raise capital based<br />
on this criteria set by Bangladesh<br />
Bank. Issuance of debt and equity<br />
by banks is their only option and<br />
this will generate liquidity in the<br />
market.<br />
4.Infrastructural development:<br />
Government of Bangladesh has<br />
taken various initiatives to<br />
criticism lately due to making<br />
issue price of the listed security<br />
too high and hence, is being<br />
reviewed by SEC. To encourage<br />
the large and well reputed<br />
corporate houses of the country to<br />
get listed in the exchanges, there<br />
is no alternative to this method as<br />
it ensures that the company gets<br />
its fair price while floating shares.<br />
However, Regulators need to be<br />
more vigilant in order to check<br />
manipulation/staging of planned<br />
games.<br />
6.Mutual funds: Recently SEC<br />
gave permission to offload BDT 5<br />
Bn mutual fund- First Bangladesh<br />
market given we can ensure<br />
increase in the supply side of<br />
quality shares.<br />
7.Tax Incentive: Banking,<br />
Financial and Telecommunication<br />
companies are not given incentive<br />
by way of tax rebate for giving<br />
high dividend to share holders<br />
which is applicable for other sectors<br />
listed in the stock exchange. Tax<br />
Incentives will encourage these<br />
sectors to pay higher dividends<br />
which will contribute to<br />
improvement of the investors<br />
approach by shifting focus from<br />
short term capital gain to long<br />
term stickiness with good stocks.<br />
16<br />
January - March 2011<br />
The Bangladesh Accountant
8.Capital gain: The capital gain<br />
made during this period is not<br />
transferred out of the country for<br />
our breath of relief. This is evident<br />
from the hefty profit figures of the<br />
Commercial Banks and Merchant<br />
Banks. Moreover, their growth in<br />
earnings is not relevant with the<br />
growth of the economy or even<br />
growth in LC opened. So,<br />
reinvestment of the money is<br />
possible in the market again. But<br />
it needs to be ensured that all<br />
institutions are making investment<br />
complying the regulations and not<br />
taking over exposures.<br />
Let the Market attain its<br />
true potentials<br />
As of 2 March 2011, the DSE<br />
General index stands at 5292<br />
points with a dramatic fall from<br />
the highest point of 8,918 on 5<br />
December 2010 . Retail Investors’<br />
confidence over the market has<br />
been lost to great extent.<br />
Government and Regulators have<br />
been trying to up hold the market<br />
but a modest recovery is yet to be<br />
achieved.<br />
In this context, the question arises<br />
how to stop the market from<br />
further fall. It is believed that the<br />
present market is big enough and<br />
cannot be manipulated by some<br />
gamblers like they did back in<br />
1996. It took almost 14 years for<br />
the market to get to this height<br />
and it really has the strength and<br />
opportunities, both for investors<br />
and borrowers, to sustain. It is<br />
imperative to gain the confidence<br />
of the investors and take the<br />
market to a point of stability.<br />
Thereafter, the market is to be<br />
adjusted for the various anomalies<br />
that are inherent in it.<br />
• Strengthening surveillance is a<br />
must for our capital market.<br />
Trading behavior analysis of<br />
Broker House, Merchant<br />
Banks, and Mutual Fund<br />
companies needs to be<br />
performed by SEC. Various IT<br />
based automated systems are<br />
available in the market and<br />
some donor organizations /<br />
corporate houses will be<br />
interested to support SEC in<br />
this regard. Immediate<br />
arrangement and proper<br />
implementation of these<br />
systems will bring positive<br />
result in the market.<br />
• An independent expert<br />
Judiciary Tribunal is to be<br />
created solely for capital<br />
market issues. Enforcement of<br />
regulation is to be ensured in<br />
the market. The existing laws<br />
can also be modified to ensure<br />
that any foul play can be<br />
punished in accordance to the<br />
impact. The share scam of<br />
1996 is still not resolved and<br />
no disciplinary action has<br />
been taken till date. It gives<br />
room for the wrong doers to<br />
keep on spoiling the market<br />
without much fear of any<br />
punishment.<br />
• Long term strategy should be<br />
adopted in consultation with<br />
all the stakeholders of capital<br />
market. A consolidated team<br />
approach is to be taken into<br />
consideration. Coordinated<br />
effort, positive market driven<br />
policies and prudent decision<br />
can make the market a good<br />
investment sanctuary.<br />
• Efforts should be given to<br />
increase the number of listed<br />
securities ( from existing 219<br />
equity shares) in the market.<br />
Offloading a good number of<br />
fundamentally sound and well<br />
reputed companies’ shares in<br />
the market will increase the<br />
depth of the market and<br />
strengthen the supply side.<br />
Mere offloading shares of<br />
non-performing State Owned<br />
Enterprises ( SOE) will not scarcity<br />
of good shares .<br />
• Lead time of ‘Application to<br />
Listing’ of a new company is<br />
to be reduced significantly. It<br />
takes on an average 2-3<br />
months to complete the<br />
procedure in our country,<br />
compared to around 1-2 weeks<br />
in developed markets i.e. US,<br />
UK, Singapore, HK. This<br />
creates blockage of a lot of<br />
funds from the market. Unless<br />
the fund invested in one IPO is<br />
released, a small investor can<br />
not invest in open shares in<br />
the market. A move to cut the<br />
time frame between<br />
application and listing will<br />
benefit with higher velocity of<br />
invested fund in Capital<br />
Market Process simplification,<br />
adoption of IT based best<br />
practice and automation can<br />
help to faster execution of<br />
IPO, which will facilitate more<br />
IPOs to come to market.<br />
• The market should focus on<br />
bringing in more institutional<br />
investors. These investors have<br />
long term commitment and<br />
provide liquidity to the market.<br />
Longer investment horizons<br />
reduce market volatility and<br />
their investment strategies are<br />
fundamental focused rather<br />
than being speculative.<br />
• SEC should consider the<br />
flotation of more Mutual<br />
Funds in the market to<br />
increase its dimension. This<br />
fund has the capacity to<br />
provide retail investors with<br />
indirect market access, better<br />
prevention of wealth & capital<br />
losses, reduction of<br />
dependency on retail investor<br />
and induction of more<br />
institutional investors.<br />
• Appropriate amendments of<br />
Companies Act and related<br />
The Bangladesh Accountant January - March 2011 17
ules from SEC are required,<br />
allowing the company to buy<br />
back its own shares (section 58<br />
of Bangladesh Companies Act<br />
states clearly that a company<br />
cannot buy its own shares).<br />
The UK companies act of 1955<br />
disallowed companies from<br />
holding their own shares;<br />
however this was repealed in<br />
1993. The Indian capital<br />
market has allowed buy backs<br />
since 1998. This option can<br />
reduce price volatility of a<br />
particular share in the market.<br />
• Media can play a big role in<br />
directing the investors towards<br />
the actual learning from the<br />
recent disorder in the market.<br />
They should infuse confidence<br />
by disseminating information<br />
regarding existence of scope<br />
for knowledge based<br />
investment opportunity in the<br />
market.<br />
• Modification is required in the<br />
index calculation procedure<br />
with International best<br />
practice. Under current<br />
method, a particular large cap<br />
company ends up with<br />
significant impact on the Index<br />
movement with slight<br />
movement in its share price.<br />
Free-float based index<br />
calculation can be the option<br />
for consideration. This step<br />
will reduce magnification of<br />
DGEN index with great extent.<br />
• Investors should concentrate<br />
more on individual shares<br />
rather than making decisions<br />
based on market index. Still<br />
there is scope of making<br />
money by investing in the<br />
shares that possess good<br />
fundamental and technical<br />
valuation. If a major portion of<br />
the investors realize this<br />
learning, significant amount of<br />
stability can be achieved even<br />
in this downpour.<br />
• There is no alternative to<br />
analysis for participation in the<br />
capital market. Analyst<br />
Reports/Research Reports play<br />
a vital role in developed<br />
markets. Investors should<br />
realize that they are investing<br />
in stock being an equity<br />
partner of a company. They<br />
should go for a thorough<br />
health checkup of the<br />
company selected. There are a<br />
lot of ways to gather that<br />
knowledge from various<br />
institutions. Even SEC can<br />
arrange training programs at a<br />
large scale for investors in<br />
general. With the right<br />
knowledge and awareness<br />
built, the ‘syndicates’ will not<br />
be able to siphon out money<br />
capitalizing on the small<br />
investors’ ignorance.<br />
• Political commitment towards<br />
the development of power,<br />
infrastructure and legislation.<br />
Improving these sectors will<br />
boost up industrialization in<br />
our country. If we look at the<br />
composition of all the scrips of<br />
our stock market,<br />
manufacturing sector<br />
comprises of only 22.21 % of<br />
the market capitalization. This<br />
percentage needs to be<br />
improved for a strong<br />
economic growth. Capital<br />
market can play a pivotal role<br />
in this regard.<br />
Capital Market of Bangladesh, to<br />
us, is still ‘a mine of opportunity’.<br />
Still the market is suitable for<br />
investment as there are lots of<br />
value driven shares at a<br />
reasonable price. Investors should<br />
come forward with a mindset of<br />
making a long term investment.<br />
Gain and loss both come as a<br />
package in the investment game.<br />
Prudent decision making can<br />
enhance gain or reduce loss and<br />
this should be the objective of the<br />
investors in general.<br />
True commitment by the<br />
concerned regulators and the<br />
present political government can<br />
improve the situation. Needful<br />
revision in the regulations with<br />
effective enforcement, automation<br />
in vigilance, encouraging<br />
analytical / research reports and<br />
creating better awareness can take<br />
our Capital Market to a structured<br />
level which can contribute<br />
significantly to the economic<br />
development.<br />
(The author is thankful to Mr.<br />
AKM Sohan Alam and Mr. Khaled<br />
Maruf for their support)<br />
The Author is Member, <strong>ICAB</strong> and<br />
Deputy CEO & Chief Finacial Officer of<br />
Grameenphone Ltd.<br />
18<br />
January - March 2011<br />
The Bangladesh Accountant
Avoiding Losses in the<br />
Share Market<br />
M. Farhad Hussain FCA<br />
Patience, mathematics and due<br />
diligence to screen the stock are<br />
the secrets to avoid losses in the<br />
stock market. To reduce the<br />
chances of loss, you must<br />
minimize mistakes. Fewer the<br />
error made over your investing<br />
career, better the long term<br />
returns. Earning an extra<br />
percentage on your investment<br />
compounds into amazing amount<br />
in the long term.<br />
The same holds true if you can<br />
avoid a loss. When you lose<br />
money, even for just a year, you<br />
slowly erode the terminal value of<br />
your investment. Losses also<br />
reduce the positive effects of<br />
compounding.<br />
Losses occur primarily for<br />
three reasons:<br />
1. You took a bigger risk and<br />
exposed yourself to a higher<br />
possibility of loss<br />
2. You invested in an instrument<br />
that failed to keep pace with<br />
inflation and interest rates<br />
3. You didn’t hold the instrument<br />
long enough to let its true<br />
intrinsic value to be realized<br />
Please not the risk in getting into<br />
something without knowing<br />
about it.<br />
It’s a sad fact that most day traders<br />
lose money over time. Research<br />
has clearly shown that long-term<br />
returns are tied to your holding<br />
periods and to the price you pay.<br />
Excessive trading and a disregard<br />
for fundamental risks serve as<br />
weighty anchor that keeps<br />
short-term oriented investors<br />
away from consistently<br />
performing well. Over time, most<br />
of their winning trades are likely<br />
to be eaten up by their losing<br />
trades.<br />
The following is a list of top five<br />
rules for success in investment in<br />
shares:<br />
Rule 1. Take a long-term<br />
perspective.<br />
Rule 2. Keep adding money to the<br />
market and let the magic of<br />
compounding work for you.<br />
Rule 3. Don’t try to time the<br />
market.<br />
Rule 4. Stick to companies you<br />
understand. “When we<br />
invest in stocks, we invest<br />
in businesses.”<br />
Rule 5. Diversify.Goleman’s<br />
theories of cognitive<br />
evolution have particular<br />
relevance for investors.<br />
Most of the sweeping<br />
developments in the fields<br />
of economics and finance,<br />
Mauboussin noted, were<br />
tested, applied, and taught<br />
within the past 40-50<br />
years.<br />
It has taken tens of thousands of<br />
years for us to catch up with our<br />
environment, it is fair to say that<br />
humans have no mental basis, or<br />
context, to understand how to<br />
invest in capital markets rationally.<br />
This awareness of our limitations<br />
can help us avoid common stock<br />
picking errors. Investors tend to<br />
make seven common errors of<br />
judgment:<br />
1. We have an innate desire to<br />
be a part of crowd and feel<br />
safer making mistake with<br />
others than striking out on our<br />
own.<br />
2. We suffer from<br />
overconfidence in our<br />
abilities.<br />
The Bangladesh Accountant January - March 2011 19
3. We are unable to assess<br />
probabilities rationally.<br />
4. We are easily lured by<br />
storytelling, especially when<br />
the story attempts to provide<br />
answers to pressing questions.<br />
5. We want to rely on “rules of<br />
thumb” even in the absence<br />
of rigorous proof.<br />
6. we ignore statistical truisms<br />
regarding chance and<br />
probability.<br />
7. We believe that the intuitive<br />
skills possessed by some<br />
humans (successful stock<br />
pickers, for example) are<br />
readily transferable.<br />
Emotions and habits play a vital<br />
role in the investment process.<br />
“<br />
b. Greed<br />
If you are greedy, you can never<br />
make much money in the capital<br />
market because you cannot beat<br />
the market always. Greed is<br />
another major factor that make<br />
investors loose money by<br />
sheaving their get out price<br />
because the price of the stock is<br />
going up and they hang on to get<br />
a higher price than what they<br />
planned for.<br />
c. Poverty Mentality<br />
Most investors mistake their<br />
poverty mentality as being smart<br />
by dodging to pay for knowledge.<br />
Most investor in this category<br />
prefer to invest in ignorance<br />
instead of paying for vital<br />
information that will help them.<br />
read business magazines and<br />
journals to get information and do<br />
cross check any information that<br />
comes your way before making<br />
use of it. Also beware of<br />
sponsored analysis so you do not<br />
fall prey to them.Common sense<br />
and a knowledge of business is<br />
more important to the investment<br />
process than academic formulas.<br />
Ignore day-to-day fluctuations in<br />
the market: They’re often<br />
meaningless to the bigger picture.<br />
Avoid relying on forecasts because<br />
most prove to be wrong and are<br />
Emotions and habits play a vital role<br />
in the investment process”<br />
The Stock Market is a place where<br />
million are made, it’s a place<br />
where the principle of taking from<br />
those that do not have (The poor<br />
and the not too Rich), and give to<br />
those who are already rich of<br />
extremely rich applies. People do<br />
not just loose money in the Stock<br />
market for no just cause or reason.<br />
There are a lot of reasons why<br />
people loose money in the stock<br />
market. These reasons include:<br />
a. Ignorance<br />
It has been established that 80%<br />
of stock investors, invest based on<br />
rumors and not on real and true<br />
facts. Ignorance is a major reason<br />
why many loose money in the<br />
capital market<br />
d. Sentiment<br />
Stocks are not your friend, so do<br />
not fall in love with any stock<br />
rather, treat them as your slave by<br />
using and dumping them when<br />
you have achieved what you had<br />
in mind while buying them.<br />
Buying stocks on sentiment<br />
includes buying a stock because<br />
you like the stock or to help a<br />
friend or relation meet their target.<br />
Never buy a stock based on you<br />
sentimental feelings.<br />
e. Wrong Information<br />
When you are not informed, you<br />
are deformed and half education<br />
is a greater problem compared to<br />
illiteracy. Attend seminars and<br />
made to entice you to trade.<br />
Remember that you are buying<br />
piece of a company and trying to<br />
share in its fortunes. Don’t adopt<br />
the view that investing is about<br />
shuffling stock certificates.<br />
Let time be the natural friend of<br />
your portfolio. There is also<br />
another alternative: Don’t do<br />
anything. More fortunes are made<br />
by sitting on good securities for<br />
years at a time than by active<br />
trading.<br />
Stay within your strengths when<br />
evaluating businesses. Judge a<br />
business by what it’s worth to its<br />
owners and what it costs to<br />
maintain it. The business is<br />
wonderful if it gives you more and<br />
more money every year without<br />
20<br />
January - March 2011<br />
The Bangladesh Accountant
putting up anything-or very little.<br />
And we have some businesses like<br />
that. A business is also wonderful<br />
if it takes money, but where the<br />
rate at which you reinvest the<br />
money is very satisfactory. The<br />
worst business of all is the one<br />
that grows a lot, where you’re<br />
forced to grow just to stay in the<br />
game at all and where you’re<br />
reinvesting<br />
the capital at a very low rate of<br />
return. And sometimes people are<br />
in those businesses without<br />
knowing it.<br />
Don’t trap yourself into believing<br />
a business or product is worth<br />
exactly what someone is willing to<br />
pay. Someday, you’ll end up<br />
paying dearly for a business<br />
propped by perception only. Do<br />
your homework before purchasing<br />
a stock.<br />
I don’t think you can be a really<br />
good investor over a broad range<br />
without doing a massive amount<br />
of reading. You might think about<br />
picking out 5 or 10 companies<br />
where you feel quite familiar with<br />
their products, but not necessarily<br />
so familiar with their financials….<br />
Then get lots of annual reports and<br />
all of the articles that have been<br />
written on those companies for 5<br />
or 10 years…. Just sort of immerse<br />
yourself. And when you get all<br />
through, ask yourself, “What do I<br />
not know that I need to know”?<br />
Some companies are easier to<br />
understand and some are not.<br />
Result of some companies are by<br />
and large consistent and some are<br />
not. Try to look for the ones that<br />
are easy to understand and have<br />
consistent track record.<br />
Never feel compelled to buy or<br />
sell just because it seems<br />
fashionable. A low price doesn’t<br />
guarantee a bargain. The company<br />
must offer a combination of good<br />
value and improving<br />
fundamentals.Look at stock<br />
fluctuations as your friend rather<br />
than your enemy-profit from the<br />
folly rather than participate in it.<br />
Three most important words of<br />
investing: “margin of safety<br />
Most investors illogically become<br />
euphoric when stock prices rise<br />
and unhappy when they fall. They<br />
show no such confusion in their<br />
reaction to food prices: Knowing<br />
they are forever going to be<br />
buyers of food, they welcome<br />
falling and deplore price<br />
increases. (It’s the seller of the<br />
food who doesn’t like declining<br />
prices).<br />
Price fluctuations have only one<br />
significant meaning for the true<br />
investor. They provide him with<br />
an opportunity to buy wisely<br />
when prices fall sharply and to sell<br />
wisely when they advance a great<br />
deal. At other times you will do<br />
better if you forget about the stock<br />
market and pay attention to the<br />
operating results of his companies.<br />
The Author is a Council Member &<br />
Past President of <strong>ICAB</strong><br />
The Bangladesh Accountant January - March 2011 21
State of the Bangladesh Economy<br />
in Fiscal Year 2010-1011<br />
Mr. M. Farhad Hussain FCA<br />
Acknowledgement<br />
The CPD IRBD 2010‐11 team<br />
would like to express its profound<br />
gratitude to Professor Rehman<br />
Sobhan, Chairman, CPD for his<br />
advice and guidance in preparing<br />
this report. The team gratefully<br />
acknowledges the valuable<br />
contribution of Ms Anisatul<br />
Fatema Yousuf, Head and<br />
Director, Dialogue &<br />
Communication Division, CPD<br />
and her colleagues at the Division<br />
in preparing this report.<br />
Contribution of Administration &<br />
Accounts Division is also highly<br />
appreciated. Support of Mr A H M<br />
Ashrafuzzaman, Senior System<br />
Analyst and Mr Hamidul Hoque<br />
Mondal, Senior Administrative<br />
Associate is particularly<br />
appreciated. The team would like<br />
to appreciate the valuable support<br />
it has received in accessing<br />
relevant data and information<br />
from concerned officials<br />
belonging to a number of<br />
institutions including Bangladesh<br />
Bank, Bangladesh Bureau of<br />
Statistics (BBS), Bangladesh Power<br />
Development Board (BPDB),<br />
Board of Investment (BoI),<br />
Department of Agricultural<br />
Extension (DAE), Dhaka Stock<br />
Exchange (DSE), Export<br />
Promotion Bureau (EPB), Ministry<br />
of Food and Disaster<br />
Management (MoFDM), Bureau<br />
of Manpower, Employment and<br />
Training (BMET), National Board<br />
of Revenue (NBR), Petrobangla,<br />
and Planning Commission.<br />
Recent Trends in the<br />
Capital Market<br />
The capital market in Bangladesh<br />
is increasingly coming under<br />
scrutiny as it is detracting from its<br />
core purpose i.e. raising equity<br />
for industrial activities. It is<br />
maintained that recent growth in<br />
the capital market is difficult to<br />
relate to the growth of real<br />
economy, rather it is indicative of<br />
inadequate investment<br />
opportunities in productive<br />
sectors, short‐term speculative<br />
trading behavior underpinned by<br />
market irregularities and<br />
anomalies, weak oversight<br />
functions of regulatory bodies and<br />
poor policy framework for the<br />
financial sector. From this<br />
perspective, four key issues may<br />
be highlighted in the context of<br />
the current state of affairs in the<br />
sector. These are: a) lack of<br />
investment opportunities in<br />
productive sector; b) poor<br />
governance in the capital market;<br />
c) market manipulation; and d)<br />
anomalies in the financial sector.<br />
Since FY2005‐06, stock market<br />
related indicators have registered<br />
significant rise66; these trends<br />
have continued in FY2010‐11.<br />
Between July 2010 and December<br />
2010, DSE General Price Index<br />
(DGEN) has registered a growth of<br />
34.7 per cent, market<br />
capitalisation has increased by<br />
29.5 per cent and Price Earnings<br />
(P/E) ratio has increased to 26.3<br />
(Table 11). Overall market<br />
capitalisation at the end of<br />
December, 2010 was as high as<br />
51.5 per cent of GDP, which was<br />
38.5 per cent of GDP even in<br />
June, 2010. Market related factors<br />
such as issuance of the highest<br />
number of Initial Public Offerings<br />
(IPOs) in FY2009‐1067, entry of<br />
large number of small investors in<br />
the market with large volume of<br />
liquidity and revealed market<br />
anomalies in an inefficient market<br />
can only explain a part of this<br />
growth.<br />
22<br />
January - March 2011<br />
The Bangladesh Accountant
Table 11: Major Indicators related to the Stock Market: FY2008 to November, FY2011<br />
Indicators FY08 FY9 FY10<br />
FY11<br />
(Jul. Dec.)<br />
FY09<br />
over<br />
FY08<br />
% Change<br />
FY10 FY11 over<br />
over FY10<br />
FY09 (Jul. Dec.)<br />
DSE General Index 3000.5 3010.26 6153.68 8290.41 0.33 104.42 89.24<br />
No. of listed securies 378 443 450 445 17.2 1.58 7.23<br />
Total number of companies 271 282 243 246 4.06 13.83 4.24<br />
Market capitalisaon (billion USD) 14.07 19.02 38.51 49.86 35.18 102.47 86.11<br />
Issued capital (million USD) 4149.71 6634.94 8755.02 9220.5 59.89 31.95 22.16<br />
Turnover (million USD) 47.97 136.55 273.53 233.77 184.66 100.31 76.74<br />
Market P/E 22.8 18.44 24.08 26.29 19.12 30.59 2.50<br />
GDP at current price(billion USD) 79.56 89.36 98.75 101.22 12.31 10.51 7.61<br />
Market capitalisaon as % of GDP 17.68 21.28 38.5 51.52 20.36 83.22 80.90<br />
No.ofIPOs 12 14 21 9 16.67 50 28.57<br />
%ofoversubscripon for IPOs 94 93.6 0.43<br />
Growth of total investment 14.31 13.4 12.23<br />
Source: Based on informaon available in the websites of DSE and Ministry of Finance, GoB.<br />
Lack of investment<br />
opportunities in the<br />
productive sector<br />
a) Lack of investment<br />
opportunities in the productive<br />
sector and presence of excess<br />
liquidity<br />
Growth of investment in the<br />
productive sectors experienced a<br />
slow down during the recent years<br />
mainly because of adverse impact<br />
of the global recession, and crisis<br />
of energy and power. A large<br />
number of export‐oriented and<br />
other industries are struggling to<br />
secure their return on investment.<br />
Private investment during<br />
FY2009‐10 was Tk. 1362.8 billion<br />
(i.e. 19.7 per cent of GDP), with<br />
the lowest level of growth over the<br />
last five years (12.7 per cent). As a<br />
result, a large volume of investible<br />
surplus was available in the<br />
banking sector (Tk. 28849 crore at<br />
the end of October 2010). Banks<br />
had been offering modest rate of<br />
interest (7‐10 per cent) on various<br />
savings instruments such as time<br />
deposit, wage earner’s bond and<br />
NSDs, which in the face of<br />
growing inflation meant that in<br />
real terms yields on these<br />
instruments was significantly<br />
low.69 Small savers, who are the<br />
main investors in these savings<br />
instruments, were further<br />
discouraged because of reduction<br />
of deposit rates of NSD certificates<br />
and interest rate of wage earners’<br />
bonds as well as imposition of tax<br />
at source on interest income and<br />
cancellation of automatic<br />
re‐investment of wage earners’<br />
bonds. Net investment in NSD<br />
certificates has declined by 49 per<br />
cent during July‐September 2010,<br />
while it was as high as 270 per<br />
cent for the comparable period of<br />
the previous year.70 Consequently<br />
small savers were prompted to<br />
look for alternate investment<br />
opportunities, more specifically in<br />
the capital market.<br />
Investment in the capital market,<br />
particularly short term trading in<br />
small size securities is found to be<br />
profitable compared to that of<br />
long term investment in the stock<br />
market as well as investment in<br />
various savings certificates<br />
including the NSD certificates.<br />
This is evidenced by empirical<br />
data. According to Table 12,<br />
investors received relatively<br />
higher rates of return for long term<br />
investment in the capital market<br />
more than 80 per cent companies<br />
holding Annual General Meeting<br />
(AGM) in recent years have<br />
offered a return which was higher<br />
than that on savings certificates.<br />
Besides, 22 per cent of the<br />
companies holding AGM, offered<br />
right shares during FY2009‐10.<br />
However, in some instances<br />
companies could not hold AGMs<br />
in due time and did not offer<br />
return to their investors which<br />
indicate risks associated with long<br />
term investment.<br />
The Bangladesh Accountant January - March 2011 23
Table 12: Return to Investment in the Capital Market for Over One Year<br />
Type of Benefit FY2007 08 FY2008 09 FY2009 10<br />
No of<br />
companies<br />
Cumulave<br />
share (%)<br />
No of<br />
companies<br />
Cumulave<br />
share (%)<br />
No of<br />
companies<br />
Cumulave<br />
share (%)<br />
Right share 0 3 1 25 22<br />
50% and Above 23 12 30 14 20 41<br />
40% 49% 5 15 12 20 2 43<br />
30% 39% 34 34 40 37 9 51<br />
20% 29% 36 55 38 54 18 67<br />
10% 19% 56 86 80 90 21 87<br />
1% 9% 14 94 11 95 7 93<br />
No dividend 10 100 11 100 7 100<br />
Total companies held AGM 178 225 109<br />
Total Number of Listed<br />
companies<br />
271 282 243<br />
Source: CPD Esmates, 2010.<br />
Short‐term return on trading<br />
appears to be much higher as is<br />
revealed from the estimation of<br />
capital gains of DSE 20 and Z<br />
category shares (Table 13).<br />
Although the return on a number<br />
of shares was negative which<br />
indicates the related risks<br />
associated with short‐term trading<br />
of shares, on average return to<br />
blue chips and Z‐category shares<br />
was considerably high. This may<br />
be true for other categories of<br />
shares. Low risk with high return<br />
in case of short term trading has<br />
acted as a ‘pull factor’ and has<br />
encouraged investors (mostly<br />
small investors) to divert funds<br />
from other sources to the stock<br />
market.<br />
Table 13: Potenal Capital Gain on Different Categories of Shares<br />
Year FY2007 08 FY2008 09 FY2009 10<br />
Category Highest Average Lowest Highest Average Lowest Highest Average Lowest<br />
DSE20 345.98 93.58 21.51 99.39 11.78 31.85 184.32 48.73 25.85<br />
Z<br />
category<br />
371.43 100.3 6.82 330.77 78.68 34.87 2198.73 341.1 29.93<br />
Source: CPD esmates, 2010.<br />
Note: Potential capital gain of DSE 20 and shares of Z category is the difference between share prices of the<br />
first day and closing day of trading in the fiscal year.<br />
24<br />
January - March 2011<br />
The Bangladesh Accountant
) Huge inflow of new investors<br />
in the stock market eager to<br />
participate in the ‘Keynesian<br />
Beauty Contest’<br />
In recent years there is an<br />
unexpected rise in the number of<br />
investors in the stock market. Total<br />
number of Beneficiary Owner<br />
(BO) account holders till 20<br />
December, 2010 was 3.21<br />
million.71 This number increased<br />
by 154 per cent between January<br />
to December 2010.72 A large part<br />
of these investors have little<br />
knowledge about the market and<br />
participate in trading as if they are<br />
participating in a ‘Keynesian<br />
Beauty Contest’.<br />
A number of factors have<br />
facilitated the influx of investors to<br />
the stock market, such as opening<br />
of brokerage houses in various<br />
districts (590 branch offices of 238<br />
brokerage houses of DSE are<br />
currently being operated in 32<br />
districts)73, organization of ‘share<br />
mela’ in different districts and<br />
introduction of internet‐based<br />
trading operation. Also<br />
market‐related information is now<br />
easily accessible through<br />
electronic and print media as well<br />
as internet. According to a number<br />
of studies (Tetlock (2007);<br />
Tumarkin and Whitelaw<br />
(2001)74), a large number of<br />
investors are now participating in<br />
short‐term trading. Besides,<br />
prediction about future flow of<br />
funds to the stock market is<br />
encouraging investors to<br />
participate more in the short‐term<br />
trading.<br />
Poor governance of the<br />
capital market<br />
a) Weak Performance of the<br />
Regulatory Authority<br />
The capacity of the Securities and<br />
Exchange Commission (SEC)<br />
appears to be inadequate in<br />
ensuring market regulation of the<br />
type that is required in view of the<br />
current scale and scope of the<br />
country’s stock market. Various<br />
markets regulating instruments75<br />
made use of by the SEC often<br />
appears to lack both<br />
ppropriateness and effectiveness<br />
from the perspective of providing<br />
the required stewardship in the<br />
market.<br />
There are several reasons for this<br />
observation. First, frequent<br />
changes in the rules by the SEC<br />
concerning margin loans have led<br />
to volatility during the ‘buffer<br />
period’. This has also led to<br />
confusion with regard to the<br />
method of calculation of the<br />
margin. Second, application of<br />
lock‐in period in case of sale of<br />
placement shares is not being<br />
properly maintained; rather in a<br />
number of incidence the rule has<br />
been relaxed. Third, floating of<br />
right shares is increasingly<br />
becoming a way of mopping up<br />
money from the market.76 A total<br />
of Tk. 2,014.5 crore was raised by<br />
16 companies by way of issuance<br />
of right shares between July 2010<br />
and second week of December<br />
2010.77 Fourth, lack of expertise<br />
in the area of competent<br />
examination of audited reports of<br />
listed companies, submitted in<br />
support of revaluation of assets, is<br />
a major operational weakness of<br />
the SEC. A number of companies<br />
have used the method of<br />
revaluation of assets with a view<br />
to raising the share prices and<br />
thereby to collect additional funds<br />
from the market. Fifth, SEC has<br />
taken an inordinately long time to<br />
implement the guidelines set by<br />
the International Organisation of<br />
Securities Commissions (ISCO);<br />
because of the delay to apply<br />
these guidelines share prices of a<br />
number of listed companies have<br />
experienced unusual volatility.78<br />
Sixth, because of weak monitoring<br />
and surveillance system, the SEC<br />
is not suitably equipped to take<br />
actions against the incidence of<br />
possible insider trading in the<br />
market. Seventh, although<br />
price‐sensitive information is<br />
supposed to be made public<br />
throughdaily trading operations,<br />
often such information is leaked<br />
out earlier or rumours are<br />
purposefully spread to influence<br />
the market behaviour.<br />
The Bangladesh Accountant January - March 2011 25
) Weak Institutional Capacity<br />
SEC at present has to work with<br />
limited office staff, with lawyers<br />
who in many instances lack the<br />
required competences; SEC also<br />
has to work without chartered<br />
accountants.79 With its limited<br />
human resource capacity SEC is<br />
able to monitor only two<br />
brokerage houses in a month.<br />
Moreover, SEC has no surveillance<br />
software of its own; rather it uses<br />
the softwares of DSE and CSE to<br />
monitor the market. Proper<br />
surveillance of transactions often<br />
becomes difficult because SEC has<br />
to depend on the support of<br />
others.80 SEC is yet to initiate the<br />
project titled Improvement of<br />
Capital Market which includes a<br />
component of support to purchase<br />
a high‐powered computer<br />
software for monitoring and<br />
surveillance operation.81<br />
The nature of relationship<br />
maintained by the SEC with the<br />
Ministry of Finance82 is not<br />
helpful for the market (e.g. face<br />
value harmonisation issue).83 The<br />
Parliamentary Standing Committee<br />
for the Ministry of Finance in<br />
certain cases has taken an<br />
‘adversarial position,’ thus<br />
creating unwarranted pressure in<br />
the operation of the SEC and the<br />
capital market.<br />
The operation modalities of the<br />
DSE and CSE, on the other hand,<br />
are being questioned on many<br />
accounts. First, the software used<br />
in case of daily trading in DSE is<br />
alleged to be ‘faulty’ as all the<br />
trading baskets cannot open at a<br />
time, and it requires some time to<br />
get access to all the baskets after<br />
the trading starts at 11 am. To<br />
adjust such delays CSE has<br />
introduced the so‐called ‘pre‐hour<br />
transactions.’ Second, there is a<br />
possibility of interruption of daily<br />
trading at DSE even if a few<br />
branches of brokerage houses do<br />
not operate properly due to<br />
technical problem. Third, often<br />
the directives of the SEC related to<br />
trading are found to be difficult to<br />
implement because of lack of<br />
updated softwares in the DSE.84<br />
While DSE needs to invest more<br />
on improvement of its trading<br />
softwares, it has come under<br />
criticism for its investment in land<br />
purchase, for establishing a resort,<br />
raising questions about its<br />
allocative priorities.85 Fourth,<br />
there is a clear conflict of interest<br />
between DSE management board<br />
and brokerage houses as owners<br />
of different brokerage houses are<br />
also the members of DSE<br />
management board.<br />
Market Manipulation<br />
A number of irregular practices<br />
have been reported in various<br />
national dailies which indicate<br />
market manipulation by a number<br />
of bull cartels.86 It is alleged that<br />
these bull cartels comprise of only<br />
a limited number of people<br />
including some members of<br />
DSE/CSE, officials of SEC, political<br />
leaders, big businessmen, officials<br />
of financial institutions, and<br />
owners of brokerage houses.<br />
Various incidences has been<br />
reported in the newspapers as<br />
regards manipulating practices<br />
such as operation of curb market<br />
in case of offering placement<br />
shares of IPOs, lifting of lock‐in<br />
period in favour of selected<br />
companies, speculative trading of<br />
‘Z’ category shares to artificially<br />
raise share prices, use of book<br />
building system through<br />
syndicated practices (see Box 6),<br />
fake transactions through<br />
brokerage houses, and access to<br />
price sensitive information prior to<br />
public announcement.87 Because<br />
of weak surveillance and<br />
monitoring system, SEC is usually<br />
unable to prevent such illegal<br />
practices.<br />
Box 6: Book Building System - Who is geng the benefit of the system?<br />
Introduction of book building system in the recent past has regrettably, in some cases, turned out to be a<br />
tool for manipulating market prices. Instead of ensuring competition among big investors during the ‘price<br />
discovery’ stage, it is alleged that the system has been used by market syndicates for placement of shares<br />
at an artificially high price. This artificial price is maintained for a certain period (usually till the lifting of<br />
the lock‐in period, i.e. 15 trading days) following which investors tend to offload their shares at a higher<br />
price. There are only three instances where book building system was practiced, of which two companies<br />
were directly listed in the market.<br />
On one occasion, those who hold the private placements were able to siphon off a considerable amount<br />
of money by selling shares at a high price within the span of one month after the offloading of the shares.<br />
As a result, share price of the company fell by 33 per cent within one month and by 50 per cent in next<br />
26<br />
January - March 2011<br />
The Bangladesh Accountant
On one occasion, those who hold the private placements were able to siphon off a considerable amount<br />
of money by selling shares at a high price within the span of one month after the offloading of the shares.<br />
As a result, share price of the company fell by 33 per cent within one month and by 50 per cent in next<br />
two months and did not rise thereafter (Figure 15). Capital flight during the first 15 days of the transaction<br />
of the shares of this company is estimated to be at least Tk. 83.7 crore. Similarly, in case of yet another<br />
company, only in the first two days of trading flight of capital has been estimated to be to the tune of Tk.<br />
64.8 crore. However, this was not the case for a third company which was not directly listed and<br />
indicative price of this share did not experience much volatility. However, the SEC was unable to take<br />
appropriate measures to address this type of abnormal market behaviour and those who were involved<br />
with such abusive practices were not met with sanctions.88<br />
Recently SEC has revised several aspects of the book building system such as putting a bar against<br />
mentioning the expected future earnings in company’s prospectus, making it mandatory for bidders to<br />
participate in the road show organised by the issuer company and shortening the period of processing the<br />
book‐building for new companies. Implications of the revised system of book building will need to be<br />
closely studied and appropriate lessons will need to be drawn.<br />
Figure 15: Daily Share Price of Company X Following Book Building System<br />
Source: Based on Dhaka Stock Exchange (DSE).<br />
Anomalies in the Financial<br />
System<br />
Certain anomalous provisions of<br />
the financial system of the country<br />
concerning the capital market are<br />
adversely affecting the<br />
development of the capital<br />
market. First, although<br />
commercial banks are not allowed<br />
to invest more than 10 per cent of<br />
their deposits in the stock<br />
market89, a total of 12<br />
commercial banks have been<br />
identified by the Bangladesh Bank<br />
which have violated this rule.<br />
Though the central bank has<br />
instructed these banks to adjust<br />
their investment within the<br />
stipulated time of November<br />
2010, things have not changed<br />
much. Second, funds disbursed to<br />
industrial enterprises in the form<br />
of term loan, working capital and<br />
over‐draft against workers’ salary<br />
is reported to have been diverted<br />
to the capital market. The central<br />
bank has instructed commercial<br />
banks to adjust such loan<br />
portfolios (particularly loans worth<br />
more than Tk. 10 million) by 15<br />
February 2011. Third,<br />
unsubstantiated gossips and<br />
rumour with regard to<br />
enforcement of the Insurance Act<br />
2010 and the Insurance<br />
Regulatory Authority Act 2010<br />
have fuelled prices of shares of<br />
some of the listed insurance<br />
companies. Fourth, while<br />
merchant banks are supposed to<br />
be issue‐managers, at least for one<br />
The Bangladesh Accountant January - March 2011 27
IPO in a year, a number of these<br />
banks were unable to comply with<br />
this target.90 This would indicate<br />
that the number of merchant<br />
banks in operation is large<br />
compared to what the market<br />
could sustain.91 Where the<br />
operation of the merchant banks<br />
should have been confined to<br />
portfolio management, often these<br />
banks are alleged to act as<br />
‘brokerage houses’.<br />
Lack of coordination among<br />
various financial markets<br />
including debt market, equity<br />
market and bond market is<br />
considered to be a major<br />
weakness for sustainable growth<br />
of the capital market. Decisions<br />
(or indecisions) of different market<br />
regulatory bodies taken at various<br />
points of time, have often<br />
contributed towards significant<br />
volatility in the market. For<br />
example, possible diversion of<br />
industrial credit to the capital<br />
market was anticipated by the<br />
Bangladesh Bank in its Monetary<br />
Policy Statement for<br />
July‐December 2010, but the<br />
required surveillance came only at<br />
a much later stage. Further, the<br />
margin rule instrument available<br />
to the SEC appears to have been<br />
applied without proper assessment<br />
of the overall money supply and<br />
demand situation prevailing in<br />
different sectors. Moreover,<br />
notwithstanding their mandated<br />
responsibilities, most market<br />
agents, such as brokerage houses,<br />
merchant banks, investment<br />
banks, institutional investors,<br />
members of DSE, are involved in<br />
short term ‘trading’. Overall, lack<br />
of proper coordination between<br />
two leading regulatory bodies of<br />
the financial sector, namely the<br />
Bangladesh Bank and SEC is said<br />
to have contributed to the current<br />
volatile behaviour that is observed<br />
in the country’s capital market .<br />
Prospect of smooth landing<br />
of the market?<br />
In the backdrop of much<br />
apprehension about severe market<br />
correction, the capital market has<br />
experienced some hiccups in<br />
December, 2010.92 In this<br />
connection, on 19 December<br />
2010 DSE witnessed the highest<br />
fall in a day in the history of stock<br />
market (6.7 per cent fall of total<br />
share pricehe index in a day). It is<br />
to be noted that within 15 days<br />
(6‐19 December 2010) share price<br />
index dipped by 1264 points<br />
(‐16.1 per cent) incurring an<br />
estimated loss of capital of about<br />
Tk.41,984 crore (Figure 16).<br />
Whilst a number of actions (and<br />
inactions) of the SEC is alleged to<br />
have contributed to this situation,<br />
mopping up of liquidity by the<br />
financial institutions in view of<br />
instructions of the Bangladesh<br />
Bank is may have played a major<br />
role in this downward spiral in the<br />
share price index.93 SEC has<br />
taken a number of urgent<br />
measures, such as re‐fixing margin<br />
loan ratio, withdrawal of the<br />
requirement of extra deposit of the<br />
brokerage houses, bringing back<br />
the shares of Grameen Phone and<br />
Marico to normal trading floor<br />
from spot market, and extending<br />
the timeline for reporting of loans<br />
of the commercial banks (as per<br />
instruction of Bangladesh Bank),<br />
which has temporarily<br />
smoothened the volatility in<br />
market prices.<br />
Figure 16: Fall of the DSE Share Price Index between November 2010 and December 2010<br />
Source: Based on DSE.<br />
28<br />
January - March 2011<br />
The Bangladesh Accountant
It is widely accepted that the<br />
current behaviour of the capital<br />
market is totally at variance with<br />
market fundamentals. The critical<br />
question is whether the stock<br />
market will ultimately experience<br />
a crash à la November 1996 or is<br />
it going to adjust smoothly? In<br />
1996, within five months the<br />
share price index rocketed from<br />
959 (June 1996) to 3,064.9<br />
(November 1996) recording a rise<br />
of as high as 219 per cent, but<br />
within the next few months it<br />
reverted back to the earlier<br />
position (957.4 in April, 1997,<br />
‐68.8 per cent) (see Appendix 1).<br />
The 1996 is stated to be a<br />
‘generated market’ with a few<br />
players (‘bull cartel’) who had<br />
inside information about the<br />
market. Initially the market was<br />
interpreted as ‘buoyant and<br />
robust’, but soon went bust<br />
causing huge losses to small<br />
investors. 94<br />
Optimists would like to stress that<br />
2010 differs significantly from<br />
1996 because of a number of<br />
distinctive features.95 However,<br />
developments in the ‘hardware’ of<br />
the stock market should have been<br />
accompanied by effective<br />
‘software’ instruments. An absence<br />
of those instruments has tended to<br />
encourage investors to invest<br />
more in the short‐term trading<br />
segment of the market. In the<br />
absence of effective ‘software’<br />
instruments market may<br />
experience some claming down<br />
for a short time, through various<br />
reactive initiatives and<br />
interventions; however, it will be<br />
very difficult to sustain current<br />
‘buoyancy’ in the long term. The<br />
‘boom’ market may go ‘bust’<br />
unless appropriate measures and<br />
initiatives are not taken<br />
immediately. In the following<br />
paragraphs, some of those<br />
measures are highlighted.<br />
Policy Suggestions<br />
The analysis in the previous<br />
sections reveals that challenges<br />
confronted by the stock market<br />
involves not merely lack of good<br />
stocks but rather it is related to a<br />
number of problems associated<br />
with bad governance and<br />
manipulation in the market itself<br />
and anomalies in the financial<br />
sector. Following measures can be<br />
considered to address the<br />
attendant market anomalies and<br />
irregularities in the stock market.<br />
Operational Measures<br />
a) Discourage short term trading<br />
in the stock market: Imposition<br />
of capital gains tax on short<br />
term trading which is currently<br />
applicable on institutional<br />
investors may be extended to<br />
private investors to be<br />
applicable for short‐term<br />
trading.96 Capital gains tax on<br />
short term trading by private<br />
investors can be a good source<br />
for revenue generation.<br />
Advanced trading software<br />
needs to be installed both at<br />
SEC as well as at brokerage<br />
houses to estimate capital gain<br />
for each transaction and the<br />
related revenue to be paid to<br />
the NBR.<br />
b) Strengthen surveillance<br />
mechanism of the SEC: Current<br />
strength of SEC needs to be<br />
increased to monitor the<br />
various brokerage houses to<br />
ensure that transactions in the<br />
stock market are made in<br />
accordance with the relevant<br />
rules. SEC should strengthen its<br />
legal advisory support system<br />
as well as financial auditing<br />
and monitoring capacities by<br />
appointing experienced and<br />
well‐reputed professionals for<br />
these purposes.<br />
c) Appropriate measures for<br />
effective operation of the<br />
market: SEC may consider a<br />
number of measures in order to<br />
improve the operational<br />
efficiency of the market. This<br />
includes extension of lock‐in<br />
period for trading of placement<br />
shares, particularly for<br />
institutional placements,<br />
especially under the<br />
book‐building system;<br />
appropriate scrutiny of audited<br />
reports submitted by the listed<br />
companies in order to ensure<br />
their quality and authenticity.<br />
d) Enforce disciplinary measures<br />
against improper/illegal<br />
activities: SEC should take<br />
disciplinary measures against<br />
various kinds of illegal<br />
activities such as, punishment<br />
for spreading rumours and<br />
short buy/sale; halting<br />
transaction of shares showing<br />
abnormal rise/fall in the prices<br />
and penalizing brokerage<br />
houses or cancellation of their<br />
licenses if settlement of<br />
accounts is not carried out in<br />
an appropriate manner.<br />
e) Strengthen educational<br />
programmes for new investors:<br />
SEC should undertake more<br />
educational programmes<br />
through its newly established<br />
Capital Market Institute for<br />
new investors to educate them<br />
on market fundamentals,<br />
market players and their role,<br />
anomalies and irregular<br />
practices in the market and<br />
their impact on share prices,<br />
legal measures at the disposal<br />
of SEC and law enforcing<br />
authorities when rules of game<br />
are violated or tampered with.<br />
The Bangladesh Accountant January - March 2011 29
Management related<br />
measures<br />
a) Strengthen the SEC<br />
Management: The SEC should<br />
be staffed by a group of people<br />
who are conversant with the<br />
nitti‐gritties of the market, are<br />
highly competent, and are of<br />
good reputation with wide<br />
public exposure. They should<br />
be honest and be able to take<br />
stern actions against misdeeds,<br />
wrong doings and illegal<br />
practices. The high profile of<br />
the management body of SEBI<br />
in India should act as an<br />
example for Bangladesh if any<br />
such restructuring of the<br />
management of the SEC is<br />
contemplated.<br />
b) Demutualization: DSE should<br />
take appropriate measures for<br />
demutualisation in the market<br />
through enforcement of<br />
appropriate regulations by<br />
putting in place restrictions so<br />
that owners of brokerage<br />
houses cannot become<br />
members of DSE management<br />
board.<br />
Policy measures<br />
a) Government’s decision to<br />
off‐load shares in the market:<br />
The progress with regard to<br />
offloading of shares of SoEs has<br />
been rather scant, although on<br />
a number of occasions<br />
government had announced<br />
(latest in November 2010)<br />
offloading of those shares,<br />
particularly of eight SoEs.<br />
Government should offload<br />
those shares without delay.<br />
b) Increase spread of corporate tax<br />
rates between listed and<br />
non‐listed companies: The<br />
existing spread of corporate tax<br />
rates between listed and<br />
non‐listed companies (10 per<br />
cent) may be further widened (15<br />
per cent) from its existing level<br />
(27.5 per cent) by further<br />
reducing tax rates to encourage<br />
new enlistment in the market.<br />
3.5 OVERSEAS<br />
EMPLOYMENT AND<br />
REMITTANCES<br />
Both in terms of the number of<br />
workers going abroad and the<br />
remittance flow, the first half of<br />
FY2010‐11 has posed formidable<br />
challenges for Bangladesh.<br />
Number of migrant workers has<br />
decreased by almost half<br />
compared to average figure for<br />
comparable periods of FY2006‐07<br />
and FY2007‐08, and for the first<br />
time growth of remittance has<br />
entered into negative terrain. Both<br />
of these performance indicators<br />
are likely to have adverse impact<br />
on Bangladesh’s labour market<br />
situation and balance of payment.<br />
Deceleration in Overseas<br />
Migration<br />
During the first five months of<br />
FY2010‐11 (July to November),<br />
overseas migration fell by about (‐)<br />
24 per cent compared to the<br />
corresponding period of the<br />
previous fiscal year. This<br />
disturbing development owes to<br />
both demand side developments<br />
in importing countries and the<br />
supply side constraints arising<br />
from the structural weaknesses<br />
which characterise Bangladesh’s<br />
migrant workforce.<br />
Changing Economic<br />
Scenario in the Post‐Crisis<br />
Period<br />
In the backdrop of the post‐crisis<br />
macroeconomic scenario,<br />
particularly the slowdown in<br />
economic activities in the<br />
construction sectors, traditional<br />
manpower destinations of<br />
Bangladesh have hosted lower<br />
number of migrant workers in the<br />
recent past. Although by now<br />
recovery has set in motion in most<br />
of these countries, the lagged<br />
response of the crisis is reflecting<br />
on the number of workers<br />
demanded in various sectors of<br />
the economy in these host<br />
countries. This is corroborated by<br />
the fact that overseas migration<br />
from Bangladesh to Kingdom of<br />
Saudi Arabia (KSA) and the UAE,<br />
two of her key manpower export<br />
destinations, fell respectively by (‐)<br />
51.7 per cent and (‐) 10.3 per cent<br />
during July‐November period of<br />
the current fiscal compared to the<br />
corresponding period of<br />
FY2009‐10 (Figure 17). Similar<br />
trend is also found for several<br />
other markets where Bangladesh<br />
has been a major supplier of<br />
migrant labour force in the past.<br />
30<br />
January - March 2011<br />
The Bangladesh Accountant
Figure 17: Overseas Migraon from Bangladesh to Major Manpower Imporng Countries (July – November)<br />
Source: Bureau of Manpower Employment and Training (BMET).<br />
Increased market share of<br />
non‐Middle Eastern countries in<br />
recent times is indicative of some<br />
market diversification away from<br />
the Middle Eastern countries;<br />
however, share of these countries<br />
is relatively low, also because<br />
these tend to demand more skilled<br />
manpower. In spite of some<br />
improvements in the skill<br />
composition of migrant labour<br />
force in recent times, the share of<br />
‘less’ and ‘unskilled’ category<br />
continues to dominate<br />
Bangladesh’s migrant workforce<br />
(more than 74 per cent of total<br />
overseas migrants from<br />
Bangladesh during July‐October,<br />
2010 belonged to the ‘less‐skilled’<br />
category). This has handicapped<br />
Bangladesh’s capacity to access<br />
the newly emerging opportunities<br />
in the post‐crisis global labour<br />
market.<br />
Stringent Regulatory<br />
Measures in the Host<br />
Countries<br />
Bangladesh’s problems have been<br />
compounded by the moratorium<br />
on issuing of new work permits<br />
(Akamas) and their renewal by the<br />
Saudi government. Although they<br />
had earlier indicated that it would<br />
allow transfer of Akama for<br />
Bangladeshi workers, which<br />
would enable them to switch to<br />
new employers after expiry of the<br />
initial job contract, till now no<br />
progress has been made on this<br />
front. Discussion with various<br />
stakeholder groups97 indicate that<br />
due to the current policy, Saudi<br />
employers are unwilling to issue<br />
work visas to Bangladeshi citizens.<br />
This has undermined<br />
employability, and led to illegal<br />
status of workers in the many<br />
instances. As a consequence,<br />
remittance flow from Saudi Arabia<br />
has been adversely affected.<br />
Illegal Stay of Bangladeshi<br />
Workers Abroad<br />
As was noted above, because of<br />
Akama related complexities, a<br />
large number of Bangladeshi<br />
workers have lost their legal status<br />
in Saudi Arabia. Similar has also<br />
been the case in Malaysia where a<br />
large number of Bangladeshi<br />
migrant workers have lost their<br />
legal status. This had two negative<br />
impacts: As was found from<br />
discussion with returned migrants<br />
from Malaysia, many such<br />
workers are discouraged to leave<br />
Malaysia and return since they are<br />
apprehensive that once they leave<br />
Malaysia they will not be able to<br />
go back.98 Recent reports suggest<br />
that more than 0.4 million<br />
Bangladeshis are now residing<br />
illegally in Malaysia. Secondly,<br />
the emergent situation has<br />
induced the Malaysian<br />
Government to put embargo on<br />
recruitment of workers from<br />
Bangladesh.<br />
High Cost of Migration<br />
Cost of overseas migration has<br />
traditionally been higher in<br />
Bangladesh compared to<br />
neighbouring countries. Many of<br />
the players involved, including<br />
recruiting agents, have connived<br />
to exploit the workers. This has<br />
led to this higher migration cost in<br />
Bangladesh. It has been found that<br />
in most cases a worker from<br />
Bangladesh has to incur more than<br />
twice or thrice the cost borne by a<br />
worker from India, Pakistan or<br />
Nepal to go overseas. For<br />
instance, although the government<br />
has fixed payment for workers<br />
going to Malaysia at a maximum<br />
of 84 thousand taka/workers (as of<br />
2009)<br />
The Bangladesh Accountant January - March 2011 31
interviews with returned workers<br />
reveal that they had to spend on<br />
average about Tk. 2 lakh. Besides,<br />
discussion with a group of South<br />
Africa bound Bangladeshi migrant<br />
workers at Dubai Airport revealed<br />
that, the workers were contracted<br />
to pay Tk. 6 lakhs each if they<br />
were successful to finally enter<br />
South Africa.99<br />
As is known, three banks are<br />
currently offering specialised loan<br />
facilities to the migrant workers. A<br />
study on migrant workers<br />
conducted by Refugee and<br />
Migratory Movements Research<br />
Unit (RMMRU) indicates that, only<br />
97 aspirant workers had so far<br />
received loans from these banks in<br />
2010. The study also pointed out<br />
that high interest rate and lack of<br />
efforts on the part of the banks’<br />
officials at the field level tends to<br />
discourage potential migrant<br />
workers from taking loans from<br />
the offering banks.<br />
Changing Preferences of<br />
Major Labour Importing<br />
Countries<br />
The problem from the supply‐side<br />
has been compounded by the<br />
policies of some of the host<br />
countries. KSA and Malaysia are<br />
two relevant examples. The GoB<br />
has been trying to address the<br />
situation through high‐level<br />
official visits and discussion at<br />
various levels. Tangible results of<br />
these efforts are yet to be seen.<br />
Some of the key manpower<br />
importing countries appears to<br />
have shifted their focus from<br />
traditional manpower exporting<br />
countries to prospective new<br />
ones. According to a number of<br />
returned migrants and recruiting<br />
agents, Saudi Arabia and Malaysia<br />
now prefer workers from Nepal. It<br />
may be mentioned here that<br />
Nepal alone has sent about<br />
18,019 workers to Saudi Arabia<br />
and more than 42,454 to Malaysia<br />
during July‐October period of<br />
FY2010‐11.100 To compare,<br />
Bangladesh’s manpower export to<br />
these two countries during the<br />
same period was 1,742 and 434<br />
respectively.<br />
There is a need for more persistent<br />
diplomatic efforts to change the<br />
situation. It may be recalled here<br />
that recently the Malaysian<br />
government has offered to recruit<br />
a sizeable number of Bangladeshi<br />
workers on ‘G to G’ basis (i.e.<br />
government to government basis).<br />
Bangladesh should try to take<br />
advantage of this opportunity by<br />
ensuring that the rules and<br />
regulations stipulated by the host<br />
country are strictly adhered to.<br />
Unscrupulous Practices by<br />
Recruiting Agents<br />
Besides charging abnormally high<br />
processing fees, a number of<br />
recruiting agents in Bangladesh<br />
are reported to provide false<br />
information to aspirant migrant<br />
workers regarding job contract,<br />
wages, tenure, fringe benefits, etc.<br />
This, on many occasions, result in<br />
illegal stay of workers in the host<br />
countries as they leave the initially<br />
contracted job due to<br />
disagreement over wages and<br />
benefits. Furthermore, some of the<br />
returned migrants have also<br />
informed that a number of<br />
recruiting agents offer job<br />
contracts in overseas companies<br />
which do not have appropriate<br />
vacancies. As a consequence,<br />
these migrants get engaged in jobs<br />
offered by other companies, a<br />
practice which is considered to be<br />
illegal by the host countries.<br />
Besides, anecdotal information<br />
also suggests that some recruiting<br />
agents from a number of other<br />
labour exporting countries<br />
(including Nepal) are engaged in<br />
sending Bangladeshi workers to<br />
the Middle‐East and other<br />
destinations, with fake passports,<br />
by introducing them as citizens of<br />
their own countr . This does not<br />
seem unreal in view of the fact<br />
that Bangladesh has an abundant<br />
supply of workers willing to go<br />
overseas and countries such as<br />
Nepal are short of workers when<br />
compared to the large number of<br />
offered job opportunities. Such<br />
practice also increases migration<br />
cost as the aspirant migrants have<br />
to go through indirect routes to<br />
reach the destination countries.<br />
There has been a significant<br />
deceleration in the growth of<br />
remittance inflow to Bangladesh<br />
during the first five months of the<br />
current fiscal (July to November).<br />
Total remittance inflow has<br />
declined by (‐) 1.7 per cent over<br />
this period compared to the same<br />
period of FY2009‐10. To compare,<br />
remittance rose by 24.4 per cent<br />
in FY2009‐10. A number of factors<br />
have contributed to this situation.<br />
Decelerating Manpower<br />
Export<br />
As Figure 18 suggests, there is a<br />
correlation between the negative<br />
growth in remittance inflow and<br />
the deceleration in the flow of<br />
overseas migration. Remittance<br />
inflow from major manpower<br />
importing countries except<br />
Malaysia has seen a fall over the<br />
recent months, to varying degrees.<br />
Although the ‘stock effect’ should<br />
have, at least in the near‐term,<br />
compensated for the (lower) ‘flow<br />
effect’, it is disquieting to see that<br />
lower levels of migration has<br />
tended to be accompanied by<br />
lower remittance flow.<br />
32<br />
January - March 2011<br />
The Bangladesh Accountant
Source: BMET.<br />
Figure 18: Market Specific Growth in Overseas Migraon and Remiances:<br />
However, one needs to be<br />
cautious in interpreting the impact<br />
of compositional changes in<br />
FY2009 10 vs FY2010 11 (July – November)<br />
manpower export markets on<br />
remittance inflow to Bangladesh.<br />
As Figure 19 shows, despite some<br />
significant changes in the share of<br />
different countries as manpower<br />
importers from Bangladesh, their<br />
share in terms of sources of<br />
remittance has remained rather<br />
less differentiated in the recent<br />
past. This would indicate that<br />
while lower overseas migration<br />
might may contributed to<br />
decreased remittance inflow, the<br />
stock effect have somewhat<br />
compensated for this, particular in<br />
host countries where there is a<br />
sizeable number of workers<br />
already exist. Nevertheless, if the<br />
deceleration in overseas migration<br />
continues, its lagged impact on<br />
remittance inflow will eventually<br />
catch up in the medium term,<br />
even in those countries; in that<br />
case the growth in remittance flow<br />
is likely to go down further.<br />
Figure 19: Market Composion for Bangladesh’s Manpower Export and Remiance Earnings:<br />
Share of Major Labour Imporng Countries<br />
Manpower Export<br />
Remiance<br />
Source: BMET, Bangladesh Bank.<br />
The Bangladesh Accountant January - March 2011 33
In view of the significant fall in<br />
remittance inflow from Saudi<br />
Arabia, it is perhaps worth<br />
investigating as to whether the<br />
restrictions arising from Akama<br />
has induced the Bangladeshi<br />
workers to opt for informal<br />
channels (hundi) to remit earnings<br />
to Bangladesh.<br />
Cost of Remittance<br />
The cost of sending remittances is<br />
falling world‐wide in recent times.<br />
Bangladeshi workers have also<br />
been able to take advantage of<br />
this, thanks also to a number of<br />
steps taken by Bangladesh’s<br />
policymakers to facilitate the<br />
transfer. An analysis of cost of<br />
remitting money to Bangladesh<br />
from different countries shows that<br />
it has seen some decrease during<br />
the first quarter of FY2010‐11<br />
compared to the same period of<br />
FY2009‐10, for Saudi Arab,<br />
Malaysia and United Kingdom;<br />
however, there has been some rise<br />
for Singapore (Figure 20).<br />
Figure 20: Cost of Sending Money to Bangladesh from Selected Countries<br />
Source: World Bank.<br />
While a worker had to pay an<br />
average of USD 4.89 to remit<br />
USD 200 from Singapore to<br />
Bangladesh during Q1 of<br />
FY2009‐10, the transaction fee<br />
increased to USD 5.99 during Q1<br />
of FY2010‐11. However, for<br />
remitting equivalent amount the<br />
processing fee in Saudi Arabia had<br />
decreased to USD 8.39 in Q1 of<br />
FY2010‐11 from USD 8.7 in Q1<br />
of FY2009‐10; for UK, the corresponding<br />
charges were USD<br />
11.43 and USD 13.37 respectively.<br />
Available information<br />
suggests that the processing fee for<br />
transfer of remittance in Malaysia<br />
decreased from USD 10.91 to<br />
USD 9.36 between Q3 of<br />
FY2009‐10 and Q1 of FY2010‐11.<br />
Indeed, total remittance from<br />
Malaysia has increased from USD<br />
158 million in Q3 of FY209‐10 to<br />
USD 168 million in Q1 of<br />
FY2010‐11. However, notwithstanding<br />
that the cost of remittance<br />
had declined for Saudi<br />
Arabia and UK, remittance from<br />
these two countries declined by (‐<br />
) 2.4 per cent and (‐) 3.0 per cent<br />
respectively during the comparable<br />
periods.<br />
Way Forward<br />
• While announcing the<br />
National Budget for<br />
FY2010‐11, the government<br />
had set a target of sending 5.77<br />
lakh workers abroad in the<br />
current fiscal. In view of the<br />
record so far (first five months),<br />
to achieve this target, an<br />
average of more than 60<br />
thousand workers will need to<br />
go abroad for work each month<br />
over the next seven months.<br />
However, given the current<br />
trend, attainment of this target<br />
appears to be highly unlikely.<br />
Since the number of migrant<br />
workers constitute a significant<br />
proportion of the annual<br />
incremental labour force of the<br />
country, such deceleration in<br />
overseas migration from<br />
Bangladesh will create<br />
additional pressure on the<br />
already challenged domestic<br />
labour market. CPD survey<br />
indicates that there is a<br />
common understanding among<br />
the relevant stakeholders to the<br />
effect that if the current<br />
deceleration in manpower<br />
exports from Bangladesh is to<br />
be reversed, the key strategy<br />
ought to be the revitalisation of<br />
the job markets in the Middle<br />
East. The government has been<br />
taking a number of initiatives to<br />
address the attendant situation,<br />
but till now the results have not<br />
been very encouraging. A<br />
proactive and aggressive<br />
diplomacy will need to be<br />
pursued in two areas if the<br />
present is to be addressed:<br />
resolving the Akama problem<br />
and ensuring the continuation<br />
of new recruits from<br />
Bangladesh.<br />
34<br />
January - March 2011<br />
The Bangladesh Accountant
• Government should continue<br />
the dialogue with major<br />
labour‐importing countries,<br />
particularly in the Middle East,<br />
to allow change of jobs by<br />
Bangladeshi migrant workers<br />
(without transfer fee). A recent<br />
study projects that about<br />
500,000 people, in different<br />
workmanship categories, will<br />
be needed in Saudi Arabia for<br />
the ongoing construction of<br />
new cities.101 The awarding of<br />
Qatar, to host the Football<br />
World Cup 2022 is also likely<br />
to create hundreds of<br />
thousands of jobs in the<br />
construction sector.<br />
Negotiations should be<br />
initiated so that Bangladesh is<br />
able to take advantage of these<br />
emerging opportunities.<br />
• Efforts should now be<br />
strengthened so that<br />
Bangladesh is able to cater to<br />
the emerging needs in new<br />
markets for migrant workers in<br />
the developed world,<br />
particularly in caring services,<br />
nursing, medical technicians,<br />
etc. Besides, countries such as<br />
Qatar and the UAE are likely<br />
demand more workers in the<br />
professional and highly‐skilled<br />
categories for the<br />
service‐and‐knowledge based<br />
economy that they are trying to<br />
build.102 To access such<br />
opportunities, a time‐bound<br />
plan should be put in place so<br />
that workers willing to travel<br />
abroad have the opportunity to<br />
undergo skill upgradation<br />
training.<br />
• Available reports suggest that<br />
demand for migrant workers is<br />
set to go up also in South Korea<br />
and in Libya. Unfortunately<br />
though, only 1,409 people<br />
went to South Korea during the<br />
first five months of FY2010‐11<br />
(however, this number was<br />
more than double the number<br />
that went to Malaysia during the<br />
same period) and none to Libya<br />
(whereas more than 12<br />
thousand people went to the<br />
country during the last six<br />
months of FY2009‐10). Efforts<br />
should be made to exploit the<br />
opportunities in the Libyan<br />
market. In recent times, people<br />
from Bangladesh have started<br />
to go to a number of African<br />
countries including Angola,<br />
Algeria, Nigeria, Botswana, and<br />
South Africa. In view of the<br />
ongoing deceleration in<br />
manpower export to the<br />
traditional markets, policy<br />
emphasis should be put to<br />
facilitate increased migration to<br />
these new and emerging<br />
markets.<br />
• World Bank (2010)103<br />
estimates indicate that<br />
low‐income countries will<br />
attain an average of 8.2 per<br />
cent growth in remittance in<br />
2010 and the forecasts are that<br />
in 2011 and in 2012 the<br />
growth rates could reach 8.7<br />
per cent and 9.0 per cent<br />
respectively. Bangladesh’s<br />
current growth rate of<br />
remittance is way below the<br />
levels suggested by these<br />
optimistic projections. There is<br />
thus an apprehension that<br />
Bangladesh is not being able to<br />
take advantage of the emerging<br />
global opportunities. If<br />
Bangladesh is to match the<br />
expected performance of the<br />
low income countries and<br />
attain growth rate of about 8‐9<br />
per cent by the end of FY2010‐11,<br />
it will have to maintain a<br />
monthly average growth rate of<br />
24 per cent during the<br />
remaining period of<br />
FY2010‐11. Indeed,<br />
Bangladesh should carefully<br />
study the policies pursued by<br />
other countries in this regard<br />
and draw the necessary<br />
lessons.<br />
• Strict monitoring and<br />
implementation of processing<br />
and visa fees which is fixed by<br />
the government is urgently<br />
required. Because of<br />
excessively high expenditure<br />
that a Bangladeshi worker has<br />
to incur, length of stay abroad,<br />
level of wages, timely payment<br />
of wages, and opportunity for<br />
working overtime are critically<br />
important for the workers.<br />
Rationalisation of cost of<br />
migration and ensuring<br />
compliance of the same by the<br />
recruiting agents must be given<br />
high priority on the<br />
government’s agenda. Work of<br />
the recruiting agencies should<br />
be monitored on a regular<br />
basis. If agencies are found to<br />
be involved in malpractice<br />
such as failure to provide<br />
appropriate and truthful<br />
information to aspirant<br />
workers, these should be<br />
strictly dealt with and those<br />
responsible should be legally<br />
obliged to pay the due<br />
compensation to the migrant<br />
workers.<br />
The Bangladesh Accountant January - March 2011 35
• Malaysia has recently<br />
expressed its intention to<br />
import manpower from<br />
Bangladesh only through the<br />
government channels. The<br />
objectives of such a proposal<br />
are to reduce migration cost<br />
and to ensure some discipline<br />
to the process. According to<br />
available information, the<br />
Government of Bangladesh will<br />
need to ensure that migration<br />
cost to Malaysia is kept<br />
between Tk. 25,000 to Tk.<br />
35,000 and these workers will<br />
get work permit for five years.<br />
In view of this changing<br />
situation, government should<br />
play a proactive role to<br />
increase the capacity of BMET<br />
to send a larger number of<br />
migrant workers through legal<br />
channel. If required, the BMET<br />
should be suitably strengthened<br />
towards this. Aspirant workers<br />
should be given appropriate<br />
information with regard to<br />
emigration procedure, laws,<br />
language and culture of the<br />
destination countries.<br />
• Regrettably, in recent times<br />
Bangladesh is losing some of its<br />
manpower market to Nepal and a<br />
number of other countries.<br />
GoB should look into the<br />
matter, identify reasons and<br />
take measures to address the<br />
situation. The allegations of<br />
recruitments of Bangladeshi<br />
workers by recruiting agencies<br />
of other countries should also<br />
be properly investigated.<br />
4. SHORT‐TERM<br />
OUTLOOK AND<br />
CONCLUDING<br />
OBSERVATIONS<br />
The crucial importance of how the<br />
Bangladesh economy performs in<br />
FY2010‐11 ought to be judged<br />
inter alia, from the following two<br />
perspectives. First, globalising<br />
economies such as Bangladesh<br />
will have to be able to capitalise<br />
on the ongoing turnaround in<br />
global economy. Second,<br />
FY2010‐11 being the first year of<br />
the Sixth Five‐Year Plan<br />
(2011‐2015), a good kick‐off in<br />
the first year will help to<br />
materialise the medium term<br />
objectives of the Plan.<br />
Growth for Structural<br />
Change<br />
For sustainable inclusive<br />
development, Bangladesh<br />
economy needs to experience a<br />
structural change based on<br />
promotion of productive sectors.<br />
Given the resource endowment of<br />
the country, it is maintained that<br />
an employment‐ intensive, but<br />
highly productive manufacturing<br />
sector has to spearhead such a<br />
structural change. In view of the<br />
above, growth experience of<br />
Bangladesh in past three decades<br />
reveals two broad phases.<br />
(i) GDP growth during 1980s and<br />
1990s had originated mainly in<br />
rapid growth of the manufacturing<br />
industries (Figure 21).<br />
(ii) In 2000s, service sector<br />
provided a substantial base to<br />
augment additional national<br />
income, while manufacturing and<br />
crop sector held their positions.<br />
Figure 21: Incremental Share of GDP by Broad Sectors (%)<br />
Source: Esmated from MoF (2010).<br />
36<br />
January - March 2011<br />
The Bangladesh Accountant
These relative developments<br />
among the GDP components<br />
indicate elements of structural<br />
change within the Bangladesh<br />
economy. In this process, while<br />
agriculture sector has ceded its<br />
relative share, service sector – not<br />
manufacturing sector – has largely<br />
picked up the space. This has<br />
happened notwithstanding<br />
acceleration of the GDP growth<br />
rate observed in the recent past.<br />
Thus, the Outline Perspective Plan<br />
of Bangladesh 2010‐2021: Making<br />
Table 14: Sectoral Share of GDP (in Per cent)<br />
Required sectoral<br />
contributions for attaining<br />
growth target<br />
Given the slowdown in the<br />
incremental share of the<br />
manufacturing sector in the recent<br />
2021 A Reality has rightly<br />
emphasised that the contribution<br />
of manufacturing sector in GDP<br />
has to be enhanced to 26.0 per<br />
cent and 30.0 per cent by<br />
FY2014‐15 and FY2020‐21<br />
respectively (Table 14) from the<br />
existing level of 17.3 per cent<br />
(FY2009 -10). Admittedly, attaining<br />
these challenging targets will<br />
require considerable acceleration in<br />
the manufacturing production.<br />
Sectors FY10 FY15<br />
(Target)<br />
FY21<br />
(Target)<br />
Agriculture 19.5 16.0 15.0<br />
Industry 28.9 35.0 40.0<br />
Manufacturing 17.3 26.0 30.0<br />
Service (including Customs Duty) 51.6 49.0 45.0<br />
Source: BBS (2010) and Planning Commission (2010).<br />
enhanced growth performance,<br />
attaining the GDP growth target in<br />
FY2010‐11 will depend, at the<br />
margin, on added contribution<br />
from this sector. Indeed, in view<br />
of current structure of GDP,<br />
economic growth beyond 5 per<br />
cent is mostly determined by<br />
manufacturing sector’s level of<br />
output.<br />
GDP growth target for FY2010‐11<br />
has been set at 6.7 per cent. The<br />
last time a ‘more than six and half<br />
per cent’ growth was achieved<br />
was in FY2005‐06 when<br />
manufacturing sector contributed<br />
more than 25.8 per cent of the<br />
aggregate growth (Table 15). An<br />
analogous performance will need<br />
to be registered from the<br />
manufacturing sector in<br />
FY2010‐11 (about 40 per cent).<br />
The growth contribution from<br />
agriculture sector also has to be as<br />
good as in the last year<br />
(FY2009‐10) (about 10 per cent).<br />
Historically, steady performance<br />
by the services sector (about 50<br />
per cent) has been underwritten<br />
by moderate achievements in the<br />
other sectors. About 49.3 per cent<br />
incremental contribution in GDP<br />
needs to be registered by the<br />
service sector in FY2010‐11.<br />
Table 15: Sectoral Contribuon to GDP Growth (%)<br />
Contribuon to Growth (%)<br />
Sector<br />
Required in FY11<br />
FY06 FY07 FY08 FY09 FY10<br />
(CPD Projecon)<br />
Agriculture Sector 16.7 15.6 11.3 14.0 15.5 11.9<br />
Crops 9.1 7.8 4.8 8.8 10.3 9.0<br />
Industry 39.4 35.9 30.6 31.6 29.3 37.3<br />
Manufacturing 25.8 25.0 19.4 19.3 17.2 25.4<br />
Service Sector 45.5 51.6 50.0 52.6 53.4 49.3<br />
Total 100 100 100 100 100 100<br />
Source: Esmated from MoF (2010) and CPD projecon.<br />
The Bangladesh Accountant January - March 2011 37
Growth Outlook for<br />
FY2010‐11<br />
At the halfway mark of<br />
FY2010‐11, there are several<br />
indications that the economy has<br />
gained some momentum,<br />
particularly due to the pick in<br />
external demand. Enhanced<br />
export receipts during the early<br />
months of FY2010‐11 also speak<br />
about the upbeat manufacturing<br />
growth. Greater investment<br />
demand is reflected in strong<br />
industrial credit flow leading to<br />
growing imports demand for<br />
capital machinery and other<br />
production inputs. The outcome<br />
of crop sector is also expected to<br />
match the recent past<br />
performance. The productions of<br />
Aus and Aman have been<br />
satisfactory, while optimistic<br />
outcome is being forecasted for<br />
the Boro yield by several quarters.<br />
The performance of service sector<br />
generally has been very steady in<br />
nature and should be consistent<br />
with the energetic performance of<br />
the real sectors. Thus, in the final<br />
analysis, broad‐based<br />
manufacturing growth will define<br />
the final growth outcome in<br />
FY2010‐11.<br />
However there are a couple of<br />
disquieting factors which may<br />
subdue the GDP growth figure for<br />
the current fiscal year. The dismal<br />
performance of small<br />
manufacturing industries could<br />
inhibit the potential expansion of<br />
manufacturing output.104 Further,<br />
considering the employment<br />
linkages of small scale<br />
manufacturing industries, low<br />
performance of the sector would<br />
have an adverse impact on labour<br />
market. Moreover, sluggish<br />
implementation of public<br />
investment programme is not only<br />
failing to provide the much<br />
needed infrastructure services, but<br />
this is also holding back private<br />
investment prospects.<br />
Furthermore, the emerging power<br />
supply situation may not be<br />
adequate to accommodate the<br />
potential expansion of agriculture<br />
and manufacturing sectors in the<br />
coming summer season. Slow<br />
visible progress in the energy and<br />
power sector is becoming a<br />
binding constraint for the growth<br />
and competitiveness of the<br />
processing activities as well as for<br />
further development of business<br />
supportive services.105 In<br />
addition, the unhealthy trend in<br />
domestic capital market is also<br />
diverting funds and attention from<br />
the development of the real<br />
sectors. Given the current context,<br />
it will be challenging to attain the<br />
GDP growth target at the end of<br />
the fiscal year if the manufacturing<br />
sector does not experience a<br />
broad‐based boost, promoting<br />
structural change.<br />
Macroeconomic<br />
management in view of the<br />
growth target<br />
The review of key economic<br />
variables suggests that<br />
macroeconomic stability in<br />
FY2010‐11 is coming under some<br />
strains on a number of fronts.<br />
These emerging strains may have<br />
implications for attaining the GDP<br />
growth objective. The size of the<br />
budget deficit at the end of the<br />
fiscal year will remain within the<br />
programmed target, but there is a<br />
need to pay specific attention in<br />
ensuring balance among the<br />
different sources of deficit<br />
financing. Rationalisation of prices<br />
of public utilities will be necessary<br />
to reduce fiscal burden. Rising<br />
food inflation may generate an<br />
overall cost push, although there<br />
is no indication of any foodgrain<br />
shortage in the country. There is<br />
also a growing concern over the<br />
balance of payment situation due<br />
to weak remittance inflow and<br />
growing trade deficit. In this<br />
context, stability of exchange rate<br />
will be of importance in<br />
maintaining macroeconomic<br />
stability.<br />
In order to address the issue of<br />
rising commodity prices (including<br />
fuel and food), volatile capital<br />
market, slow recovery of<br />
investment demand and the<br />
pressure on balance of payment,<br />
appropriate fiscal and monetary<br />
policy support for facilitating the<br />
growth process will be required.<br />
Indeed, in this case fiscal policy<br />
has to take the lead with monetary<br />
policy taking an accommodative<br />
stance commensurate with the<br />
emergent needs. It is pertinent to<br />
mention that delivery of the<br />
envisaged investment plan for<br />
achieving the growth target<br />
warrants moderately expansionary<br />
monetary policy. In view of the<br />
current inflationary trend, it is<br />
often suggested that, it is time that<br />
the monetary authority slows<br />
down the credit growth to protect<br />
macro‐economic stability.<br />
However, given the nature of<br />
inflation in Bangladesh, reigning<br />
in domestic credit growth in the<br />
current context will be not only<br />
pre‐mature, but may also prove to<br />
be counter‐productive. In a<br />
situation of a disincentive to the<br />
supply‐side, inflation may soar<br />
further as one is aware of the<br />
limits of the demand‐side inflation<br />
38<br />
January - March 2011<br />
The Bangladesh Accountant
management which often<br />
readjusts the economy at a low<br />
level equilibrium.<br />
There is a growing need to<br />
backstop the balance of payment<br />
in the coming months. However,<br />
the current reserve situation does<br />
not warrant any panic in this<br />
regard. The current BoP situation<br />
is yet to generate an adequate<br />
rationale for seeking financially<br />
expensive and policy conditional<br />
loans from foreign sources. It is<br />
not clear under what<br />
arrangements current negotiation<br />
with the IMF is being held. It is<br />
important that the government is<br />
able to maintain its<br />
growth‐supportive policy space<br />
including fiscal expansion and<br />
enhanced subsidies to critical<br />
sectors. If the conditionalities of<br />
the said loan is at variance with<br />
the declared development policy<br />
framework of the government<br />
such inconsistencies could<br />
undermine domestic ownership<br />
References<br />
Ahmed, N. (n.d.). Sources of<br />
Inflation in Bangladesh.<br />
Bangladesh Economic Association<br />
Conference, Article No. 27.<br />
Bangladesh Bank, 2010. Monetary<br />
Policy Statement. Dhaka:<br />
Bangladesh Bank.<br />
Bangladesh Bank. 2010.<br />
Economic Trend (various issues).<br />
Dhaka. Bangladesh Bank.<br />
Bangladesh Bank. 2010. Major<br />
Economic Indicators (various<br />
issues). Dhaka. Bangladesh Bank.<br />
Bangladesh Bank.<br />
http://www.bangladesh‐bank.org/<br />
Bangladesh Bureau of Statistics<br />
(BBS), 2010.<br />
http://www.bbs.gov.bd/<br />
Bangladesh Power Development<br />
Board, Government of Bangladesh<br />
(BPDB), 2010.<br />
Bureau of Manpower Employment<br />
and Training (BMET), 2010.<br />
Department of Agricultural<br />
Marketing (DAM), 2010.<br />
http://www.dam.gov.bd/<br />
Department of Census and<br />
Statistics, Sri Lanka.<br />
http://www.statistics.gov.lk/<br />
Department of Foreign<br />
Employment, Government of<br />
Nepal.<br />
http://www.dofe.gov.np/index.php<br />
DSE (Various Issues). DSE Monthly<br />
Reviews & Graphs, Dhaka Stock<br />
exchange, Dhaka.<br />
http://www.dsebd.org/<br />
Export Promotion Bureau (EPB),<br />
2010.<br />
Hossain, A. (2007). Exchange rate<br />
Responses to Inflation in<br />
Bangladesh. IMF Working Paper<br />
WP/02/166<br />
“<br />
At the halfway mark of FY2010‐11, there are several<br />
indications that the economy has gained some momentum,<br />
particularly due to the pick in external demand”<br />
over the development agenda.<br />
Indeed, a public disclosure of the<br />
soon‐to‐be‐finalised IMF<br />
programme may enable us to have<br />
an informed discussion in this<br />
regard.<br />
CPD maintains that given the<br />
present state of the economy<br />
policymakers should not get<br />
overly preoccupied with concerns<br />
about stability; rather all possible<br />
policy measures should be geared<br />
towards a broad‐based, inclusive<br />
and accelerated growth.<br />
Bhattacharya, D., Iqbal, A., &<br />
Khan, T. I. (2010). Delivering on<br />
Budget FY2009‐10: A Set of<br />
Implementation Issues. State of the<br />
Bangladesh Economy in<br />
FY2008‐09 and Outlook for<br />
FY2009‐10 (133‐163). Dhaka:<br />
Centre for Policy Dialogue (CPD.)<br />
Bhattacharya, D., & Khan, T. I.<br />
(2010). Recent Monetary Policy<br />
Statement of Bangladesh Bank<br />
(July 2009). State of the<br />
Bangladesh Economy in<br />
FY2008‐09 and Outlook for<br />
FY2009‐10 (167‐179). Dhaka:<br />
Centre for Policy Dialogue (CPD.)<br />
IMED. 2010. Progress Report on<br />
Implementation of Annual<br />
Development Programme (various<br />
issues), Dhaka: Implementation<br />
Monitoring and Evaluation<br />
Division (IMED), Ministry of<br />
Planning, Government of<br />
Bangladesh (GoB).<br />
IOM 2010. World Migration<br />
Report 2010. Geneva:<br />
International Organization for<br />
Migration (IOM).<br />
ISBN 978‐92‐9068‐590‐6.<br />
Majumdar, M.A. (2006). Inflation<br />
The Bangladesh Accountant January - March 2011 39
in Bangladesh: Supply Side<br />
Perspectives. Policy Note Series:<br />
PN 0705, Bangladesh Bank.<br />
Migration and Remittance Unit.<br />
World Bank. November 8, 2010.<br />
Ministry of Consumer Affairs,<br />
Food and Public Distribution,<br />
Government of India.<br />
MoF. 2010. Bangladesh Economic<br />
Review 2010. Dhaka: Ministry of<br />
Finance (MoF), Government of<br />
Bangladesh (GoB).<br />
MoF. 2010. Budget at a glance<br />
2010. Dhaka: Ministry of Finance<br />
(MoF), Government of Bangladesh<br />
(GoB).<br />
MoF. 2010. Medium‐Term<br />
Budgetary Framework (MTBF)<br />
2010‐11 to 2012‐13. Dhaka:<br />
Ministry of Finance (MoF),<br />
Government of Bangladesh (GoB).<br />
MoF. 2010. Monthly Fiscal<br />
Reports, various issues. Dhaka:<br />
Ministry of Finance (MoF),<br />
Government of Bangladesh (GoB).<br />
MoF. 2010. Towards Revamping<br />
Power and Energy Sector: A Road<br />
Map.Dhaka, Ministry of Finance,<br />
Government of Bangladesh.<br />
Mortaza, M. G. (2006). Sources of<br />
Inflation in Bangladesh: Recent<br />
Macroeconomic Experience.<br />
Working Paper Series: WP 0704,<br />
Policy Analysis Unit (PAU),<br />
Bangladesh Bank.<br />
Osmani, S.R. (2007). Interpreting<br />
Recent Inflationary Trends in<br />
Bangladesh and Policy Options.<br />
Presented at a dialogue, Centre for<br />
Policy Dialogue (CPD), September<br />
2007.<br />
Petrobangla.<br />
Rahman, M., Bhattacharya, D.,<br />
Shadat, W.B. and Deb, U. 2008.<br />
Recent Inflation in Bangladesh:<br />
Trends, Determinants and Impact<br />
on poverty. Dhaka: Centre for<br />
Policy Dialogue (CPD).<br />
Reserve Bank of India.<br />
http://www.rbi.org.in/<br />
Schwert, G. W. Anomalies and<br />
Market Efficiency. Chapter 15 in<br />
Handbook of the Economics of<br />
Finance, eds. George<br />
Constantinides, Milton Harris, and<br />
Rene M. Stulz, North‐Holland<br />
(2003) 937‐972.<br />
State Bank of Pakistan.<br />
http://www.sbp.org.pk/<br />
Tetlock, Paul C., Giving Content<br />
to Investor Sentiment: The Role of<br />
Media in the Stock Market. Journal<br />
of Finance, Forthcoming.<br />
Available at SSRN:<br />
ttp://ssrn.com/abstract=685145 or<br />
doi:10.2139/ssrn.685145.<br />
Thailand Rice Exporters<br />
Association for Bangkok.<br />
The Bangladesh Stockmarket:<br />
Slaughter of the Innocents (1996).<br />
The Economist. December. pp<br />
90-91.<br />
Tumarkin, R. & Whitelaw, R.<br />
News or noise? Internet postings<br />
and stock prices. Financial<br />
Analysts Journal; May/Jun 2001;<br />
57, 3; ABI/INFORM Global (pg.<br />
41).<br />
World Bank 2010. Outlook for<br />
Remittance Flows 2011‐12.<br />
Migration and Development Brief<br />
13.<br />
Extracts from a paper published<br />
with permission of CPD<br />
40<br />
January - March 2011<br />
The Bangladesh Accountant
Fundamentals to Safeguard<br />
Investment in the Capital Market<br />
Biplob Kanti Banik ACA<br />
Abstract<br />
Capital market is a risk exposed<br />
market and at the same time it is<br />
also a very attractive field of<br />
investment. But lack of prudence<br />
of investors in this market<br />
sometimes led massive<br />
catastrophic effect on the whole<br />
economy of any country. Country<br />
like Bangladesh is yet to establish<br />
a long stable capital market due to<br />
lack of some infrastructure and<br />
intellectual resources. Capital<br />
Market risk arises from various<br />
factors. Among the factors, some<br />
are fundamental and some are<br />
incidental. Both too much bearish<br />
and bullish market is not expected<br />
in the economy. Before going to<br />
invest in capital market and to<br />
source capital form capital<br />
market, one should have a<br />
minimum knowledge about<br />
capital market. And regulators,<br />
institutions should act proactively<br />
in playing their due role.<br />
Below are some basics to<br />
know about capital market<br />
On understanding the following,<br />
one may easily get the primary<br />
concept of the capital market and<br />
only then can go to invest in the<br />
capital market.<br />
What is the capital Market<br />
In my own perception, Capital<br />
market is a place where investors<br />
and entrepreneurs have come to<br />
benefit by exchanging their<br />
respective resources. Here money<br />
may be defined as the resource of<br />
investor and business idea and<br />
intellectuality may be defined as<br />
the resource of entrepreneur.<br />
Investors come with their money<br />
to invest in a potential,<br />
sustainable and well managed<br />
business and Entrepreneurs come<br />
to invite prospective and intended<br />
investors to join them providing<br />
necessary fund to launch or run<br />
the business that they intend to<br />
do.<br />
Capital market also allows<br />
subsequent trading of issued<br />
shares (which are issued through<br />
financing).<br />
Types of Capital Market<br />
The capital markets consist of<br />
primary markets and secondary<br />
markets.<br />
Primary Market<br />
Newly formed (issued) securities<br />
are bought or sold in primary<br />
markets.<br />
For example, IPO (Initial Public<br />
Offering shares), Private<br />
Placement and Promoters’ shares.<br />
The transactions in primary<br />
market exist between investors<br />
and public.<br />
Secondary Market<br />
Secondary market allows<br />
investors to sell securities that<br />
they hold or to buy existing<br />
securities. For example: buying<br />
100 shares of a company through<br />
stock broker from another party<br />
who are not direct<br />
investor/promoters in share<br />
issuing company.<br />
The transactions in secondary<br />
market exist between investors.<br />
The Bangladesh Accountant January - March 2011 41
Where is the capital market<br />
situated?<br />
Like traditional marketplace,<br />
capital market is not a land area<br />
where products are sold by<br />
weighing or counting, rather<br />
capital market consists of some<br />
institutions, regulators and<br />
authority under law of the<br />
respective country.<br />
Institutions, regulators and<br />
authorities are the infrastructure of<br />
the capital market.<br />
What are the products of<br />
capital market?<br />
Capital seekers (Entrepreneurs and<br />
Business holders) come to the<br />
market with different types of<br />
instrument to sell for raising their<br />
shortage fund. Such instruments<br />
may be regarded as the products<br />
of capital market. These are :<br />
-Share (the small part of capital)<br />
-Bond (Convertible and<br />
Non-convertible)<br />
-Debenture and other similar<br />
instruments<br />
Who could be capital<br />
market regulators and why?<br />
Nothing could be conducted<br />
without proper guidelines, rules<br />
and regulations whether the<br />
business is intended to make<br />
appreciation of money or to make<br />
welfare of the community.<br />
Likewise capital market needs to<br />
be regulated, controlled and ruled<br />
for the welfare of investors,<br />
entrepreneurs and other related<br />
parties. Government should be<br />
the firsthand regulator of the<br />
capital market with independent<br />
body.<br />
What happens if capital<br />
market is not regulated<br />
properly?<br />
A shattered, fragile and sick<br />
capital market is burden for<br />
economy and barrier to growth of<br />
trade and commerce and overall<br />
development of the country.<br />
Non-existence of sound and<br />
sustainable capital market will<br />
create dearth of sourcing and<br />
investing of capital which<br />
ultimately will create<br />
unemployment and make a<br />
slowdown of GDP growth.<br />
What is the difference<br />
between money market and<br />
capital market?<br />
Basically the difference between<br />
the capital markets and money<br />
markets is that capital markets are<br />
for long term investments,<br />
companies are selling stocks and<br />
bonds in order to borrow money<br />
from their investors to improve<br />
their company or to purchase<br />
assets. Whereas money markets<br />
are more of a short term<br />
borrowing or lending market<br />
where banks borrow and lend<br />
between each other, as well as<br />
finance companies and everything<br />
that is borrowed is usually paid<br />
back within certain period.<br />
Another difference between the<br />
two markets is what is being used<br />
to do the borrowing or lending. In<br />
the capital markets the most<br />
common thing used is stocks and<br />
bonds, whereas with the money<br />
markets the most common things<br />
used are commercial paper and<br />
certificates of deposits.<br />
Following are some<br />
fundamental risks factors of<br />
capital market<br />
The capital market risk usually<br />
defines the risk involved in the<br />
investments.<br />
There are two types of capital<br />
market –the stock market and the<br />
bond market; we may discuss<br />
stock market risks.<br />
Factors associated with capital<br />
market risks.<br />
Characteristics of Investor<br />
There are some investors who<br />
42<br />
January - March 2011<br />
The Bangladesh Accountant
come in stock market to make<br />
profit overnight without any<br />
simple understanding of the<br />
business fundamentals .They think<br />
that this market is only for making<br />
profit by buying and selling shares<br />
after two or three days .<br />
Though they call themselves<br />
investors they do not behave like<br />
investors. They behave like<br />
vendors.<br />
There is no formal authority to<br />
educate investors of capital<br />
market in our country.<br />
As we see when share prices<br />
significantly fall, investors rally on<br />
the street, damage public property<br />
and chant slogans against<br />
regulatory bodies and<br />
government.<br />
But one should ask that when<br />
investors and make them<br />
understand about capital market<br />
risk factors.<br />
The more investors are<br />
prudent, the more risk to be<br />
mitigated Psychological<br />
factors<br />
Research has shown that there are<br />
certain psychological factors that<br />
shape the stock market prices.<br />
Sometimes people tend to see<br />
patterns and make 'noise'<br />
although no such patterns may<br />
exist. Individuals are also victims<br />
of group thinking.<br />
Lack of corporate governance in<br />
publicly traded company.<br />
Most of the listed companies have<br />
no corporate governance<br />
practices in conducting their<br />
businesses. Regulatory bodies<br />
Failure to protect from<br />
speculation<br />
Sometimes the market behaves<br />
illogically to any economic news.<br />
The stock market prices can be<br />
diverted in any direction in<br />
response to press releases, rumors<br />
and mass panic. The stock market<br />
prices are also subject to<br />
speculation. So, to protect market<br />
from any buzz, our regulatory<br />
bodies and intermediaries must<br />
act proactively so that investors<br />
are saved from any kind of wrong<br />
doing regarding their investment.<br />
Understanding of Financial<br />
Information/Analysis<br />
Any investment decision requires<br />
rigorous financial analysis. In our<br />
capital market, most of the<br />
investors do not calculate their<br />
return based on company’s<br />
“Any investment decision requires rigorous financial<br />
analysis. In our capital market, most of the investors do<br />
not calculate their return based on company’s dividend<br />
payout ratio and earnings per share (EPS)”<br />
business fails; do real promoters,<br />
shareholders or directors come to<br />
street to express their anger?<br />
Rather they review their activities,<br />
decisions and analyze market<br />
situation and take decision as to<br />
whether they will continue their<br />
business or close down.<br />
Instead of reviewing their<br />
investment decisions, why<br />
investors in capital market (in<br />
secondary market) come to the<br />
street? Is it not the failure of our<br />
regulatory bodies, intermediaries<br />
of stock market that they could<br />
not educate the investors and<br />
direct the market in right track in<br />
which investors can trust?<br />
Therefore it is capital market<br />
institutions’ onus to educate<br />
only issue some compliance<br />
requirement in the name of<br />
ensuring corporate governance.<br />
And without some financial<br />
institutions, it is rarely found that<br />
companies are complying with<br />
such requirement.<br />
Existing Companies Act, Bank<br />
Company Act and Securities and<br />
Exchange Commission Act and<br />
Rules are not updated with<br />
modern practice of business rules<br />
and regulation for which business<br />
houses can deal their business as<br />
they wish.<br />
Inadequate compliance and<br />
governance in the listed<br />
companies and weak monitoring<br />
by the regulatory bodies expose<br />
capital market to risks.<br />
dividend payout ratio and<br />
earnings per share (EPS). Rather<br />
they say ‘buy this share and it will<br />
go up by Taka 100’ or say ‘it will<br />
go up’. They only consider gain<br />
over trading within 3 or 4 days.<br />
But how could it be possible?<br />
They don’t examine. It seems to<br />
be ridiculous!<br />
For example, If an investor bought<br />
a share of a company at Taka<br />
500.00 from the secondary<br />
market having face value of Taka<br />
100 and net assets value of Taka<br />
300.00 and the investee company<br />
is paying dividend at 20% p.a.<br />
what will be the return on<br />
investment of the investor on that<br />
particular share ?<br />
In this case, return on investment<br />
(20/500)*100=4% (it is assumed<br />
The Bangladesh Accountant January - March 2011 43
that the investor holds his share to<br />
the record date of dividend<br />
entitlement).<br />
But some investors do not know<br />
what is dividend; some think they<br />
will get dividend on Taka 500 i.e.<br />
Taka 100 and some really know<br />
their dividend would be Taka 20.<br />
If investing Taka 500 we get Taka<br />
20 annually from the capital<br />
market why should we not go to<br />
money market where return on<br />
investment would be around 10%<br />
to12 % and there will be no risk<br />
factors of losing capital and<br />
income?<br />
The purpose of business is not<br />
only making profit but also<br />
maximization of wealth by<br />
creating net assets value year after<br />
year. Investing in the capital<br />
market, investors may get chance<br />
of making profit and<br />
maximization of his wealth value<br />
which is not possible in money<br />
market.<br />
But should we buy wealth of Taka<br />
300 for Taka 500?. And if we<br />
buy, would we be able to get pay<br />
back of our investment within 3<br />
or 4 days or even in one year ? If<br />
it is not possible by analyzing the<br />
growth trend of investee company<br />
then question may come why<br />
should we buy share with taka<br />
500?<br />
In this case, either we should wait<br />
till the value of investment has<br />
grown above Taka 500 or we<br />
should find another investment<br />
opportunity.<br />
So if an investor wants to have a<br />
decent return on his investment<br />
(expecting dividend) for short<br />
term and to maximize the value of<br />
his equity then capital market is<br />
the perfect place for such<br />
investor.<br />
So before coming into capital<br />
market, investors’ decisions<br />
should be taken for long term<br />
with a view to maximize the<br />
value of their wealth and not for<br />
making profit overnight.<br />
Investor in the capital<br />
market should also consider<br />
the following risks<br />
The market risk defines the overall<br />
risk involved in the capital market<br />
investments. The stock market<br />
rises and falls depending on a<br />
number of issues. The collective<br />
view of the investors to invest in a<br />
particular stock or bond plays a<br />
significant role in the stock market<br />
rise and fall. Even if the company<br />
is going through a bad phase, the<br />
stock price may go up due to a<br />
rising stock market. While<br />
conversely, the stock price may<br />
fall because the market is not<br />
steady even if the investee<br />
company is doing well. Hence,<br />
these are the market risks that the<br />
stocks investors generally face.<br />
The industry risk affects all the<br />
companies of a certain industry.<br />
Hence the stocks within an<br />
industry fall under the same<br />
industry risk.<br />
The regulatory risk may affect the<br />
investors if the investee company<br />
comes under the obligation of<br />
government implemented new<br />
regulations and laws.<br />
The business risk may affect the<br />
investors if the company goes<br />
through some convulsion<br />
depending on management,<br />
strategies, market share and labor<br />
force.<br />
Systematic Risks<br />
The risk inherent to the entire<br />
market or entire market segment.<br />
Also known as "un-diversifiable<br />
risk" or "market risk<br />
Investopedia explains<br />
Systematic Risk<br />
Interest rates, recession and wars<br />
all represent sources of systematic<br />
risk because they affect the entire<br />
market and cannot be avoided<br />
through diversification. Whereas<br />
this type of risk affects a broad<br />
range of securities, unsystematic<br />
risk affects a very specific group of<br />
securities or an ndividual security.<br />
Systematic risk can be mitigated<br />
only by being hedged.<br />
Even a portfolio of well-diversified<br />
assets cannot escape all risks.<br />
Conclusion<br />
It is capital market intermediaries<br />
who have to take firsthand<br />
responsibility for evolving our<br />
capital market. As capital market<br />
is one of the important<br />
contributors to growth of our<br />
GDP, this market should be a<br />
place of profitability,<br />
sustainability, viability and<br />
confidence and trust for investors.<br />
Investors’ maturity, reaction and<br />
prudence are also vital to have<br />
sound capital market.<br />
If we consider the above factors of<br />
capital market risks before taking<br />
investment decision, a chunk<br />
amount of risk can be mitigated.<br />
We should bear in mind that this<br />
is not the place to rush to make<br />
money overnight rather it is the<br />
place where slow and steady wins<br />
the race.<br />
The Author is a Member of <strong>ICAB</strong> &<br />
Manager (Account & Finance)<br />
M. M. Ispaahani Ltd., Chittagong<br />
44<br />
January - March 2011<br />
The Bangladesh Accountant
Capital Market Review<br />
Volatility in the Bangladesh<br />
Stock market: Regulators<br />
step in to bring back<br />
investors’ confidence<br />
The country’s premier bourse<br />
Dhaka Stock Exchange (DSE)<br />
began the first trading day of 2011<br />
on January 2, 2011 against the<br />
backdrop of a record single-day<br />
fall in share prices and a persistent<br />
liquidity shortage. Although the<br />
general index of DSE (DGEN) had<br />
soared by 82% in 2010, the first<br />
week of the New Year was<br />
marked by volatility and violent<br />
protests by investors. DGEN rose<br />
by 14.18 points on January 2 but,<br />
the index has plunged by 569<br />
points over the next four trading<br />
days and a whopping 213 points<br />
on January 6.<br />
The second week of the year gave<br />
even a bigger shock to the<br />
investors when DSE suffered the<br />
steepest ever single-day fall in the<br />
bourse's history on January 9,<br />
2011. DGEN plunged by 600<br />
points, and all indices fell nearly<br />
8% amid panic-sale. Securities<br />
and Exchange Commission (SEC)<br />
and DSE authorities had to<br />
suspend trading at 11.50 a.m.<br />
when DGEN shed 660 points or<br />
9.25% between 11 am and 11.50<br />
am.<br />
Dhaka stocks bounced back on<br />
January 11, 2011 when DGEN<br />
rose more than 15% - the highest<br />
one-day spike ever - rebounding a<br />
day after a record plunge sparked<br />
violent protests nationwide and<br />
prompted a flurry of<br />
market-boosters from the<br />
authorities. DGEN gained<br />
1,012.65 points to close at 7,512.<br />
243 issues, out of 248 securities,<br />
advanced massively because of<br />
the investors buying frenzy when<br />
195 issues hit the upper band of<br />
their respective circuit breakers,<br />
forcing automatic freeze on their<br />
transaction. And there were no<br />
sellers for most of the stocks.<br />
Dhaka stocks opened the third<br />
week on January 16, 2011, with a<br />
positive note, but soon nose-dived<br />
amid volatility, after record plunge<br />
and rebound in the previous week.<br />
Out of the total of 247 issues<br />
traded on the DSE, 215 declined<br />
and 32 advanced. SEC suspended<br />
trading of both the bourses again<br />
on January 18, 2011 for the<br />
second time within eight days due<br />
to free fall of share prices.<br />
DSE had lost 600 points in five<br />
minutes of trading on January 20,<br />
2011. Thousands of aggrieved<br />
investors in Dhaka and elsewhere<br />
in the country took to the street to<br />
protest the collapse of the stock<br />
market and fought pitched battles<br />
with police as most of the<br />
investors had lost more than 50%<br />
of their capital in the collapse.<br />
DGEN lost a massive 1249.54<br />
points, or 16.49%, the highest<br />
ever in a week, as panic-stricken<br />
investors went for heavy selling,<br />
in most cases offloading their<br />
entire stocks, following liquidity<br />
crisis in the capital market.<br />
The Securities and Exchange<br />
Commission (SEC)—the capital<br />
market regulator—suspended<br />
trading for January 23-24, 2011,<br />
as per the directive of the<br />
government, while finance<br />
minister Muhith held a series of<br />
meetings with stakeholders on<br />
January 23 to stem the massive<br />
slides in share prices in the<br />
previous weeks. The<br />
government’s intervention in the<br />
capital market in the last week of<br />
the month kept the Dhaka stocks<br />
afloat as the premier burse’s<br />
general index showed an upward<br />
trend ending two weeks of<br />
The Bangladesh Accountant January - March 2011 45
massive slides. On January 25,<br />
2011, DGEN soared up by<br />
494.73 points, or 7.82%. But the<br />
day’s turnover hit two years’ low<br />
at BDT 2.06 bn as there were very<br />
few sellers in the market. DGEN<br />
advanced by 1,059.57 points or<br />
16.75%, to close the week at<br />
7,385.91 points, as share prices in<br />
all three trading sessions<br />
increased following suspension of<br />
trading for two days on January<br />
23-24, 2011. Out of total 262<br />
issues traded on the week, prices<br />
of 253 advanced and 5 declined.<br />
The average daily turnover in the<br />
week, however, was 5.88% less<br />
than the previous week. The<br />
volume of trading and daily<br />
turnover was low in three trading<br />
days as investors, who were in<br />
heavy losses, did not want to sell<br />
their shares hoping that the<br />
market would regain further.<br />
Dhaka and Chittagong stocks<br />
continued with the gaining streak<br />
for the fourth day on January 30,<br />
2011 as investors, boosted by<br />
increased liquidity supply, went<br />
into buying spree. DGEN<br />
advanced by 186.69 points, or<br />
2.52%, to close at 7,572.61<br />
points on the day, when prices of<br />
most of the shares increased<br />
further. Of the total 261 issues<br />
traded on DSE on this day, 225<br />
advanced, 33 declined and three<br />
remained unchanged. The<br />
selective price index of<br />
Chittagong Stock Exchange gained<br />
by 333.63 points, or 2.45%, to<br />
close the day at 13,896.43 points.<br />
DGEN gained 1,246.24 points in<br />
four trading sessions since January<br />
25 after the government took 14<br />
decisions to boost investors’<br />
confidence following two weeks<br />
of massive collapse in the market.<br />
However, Dhaka stocks fell on<br />
January 31 as the investors went<br />
for selling shares to book profits<br />
after a four-day gaining streak.<br />
DGEN declined by 88.38 points,<br />
or 1.17%, to close at 7,484.22<br />
points on the day. Of the total<br />
258 issues traded on this day, 178<br />
declined, 78 advanced and 2<br />
remained unchanged.<br />
The government on January 25,<br />
2011 formed a three-member<br />
committee headed by the<br />
Bangladesh Krishi Bank<br />
Chairman, Khandkar Ibrahim<br />
Khaled, to investigate share<br />
market scam. The committee will<br />
investigate the problems and<br />
irregularities in the share market.<br />
It will start its activities on January<br />
27, 2011 and submit a report<br />
within three months.<br />
The finance ministry on January<br />
24, 2011 published a bailout<br />
package spelling out steps to<br />
protect the troubled stock market.<br />
The decisions include:<br />
1. Index breaker will be<br />
withdrawn<br />
2. Circuit breaker of any share<br />
will be trimmed in<br />
consultation with bourses<br />
3. Probe committee will be<br />
formed within two weeks to<br />
assess recent developments in<br />
the market<br />
4. A comprehensive guide line<br />
for share placement will be<br />
prepared<br />
5. SEC advisory committee will<br />
be restructured, and BB will have<br />
representation into the body<br />
6. Share buyback will be allowed<br />
after reforming company laws<br />
7. Frequent meetings by SEC and<br />
BB to discuss their policies<br />
8. SEC will not intervene in case<br />
of margin loans and will<br />
prepare a long-term policy<br />
9. More training programmes<br />
should be arranged for<br />
investors<br />
10. SEC will set PE ratio<br />
considering market situation<br />
11. BB will take a flexible<br />
approach to financial<br />
institutions’ investment to<br />
capital market<br />
12. Institutional investors such as<br />
banks, financial institutions<br />
and merchant banks will<br />
reinvest a portion of their<br />
profits from stock trading into<br />
stock market.<br />
Securities Exchange Commission<br />
(SEC) and Bangladesh Bank (BB)<br />
took a series of steps to stabilize<br />
the market which virtually had no<br />
impact on the market.<br />
BB would be lenient to the banks<br />
which had provided more funds<br />
to their merchant banking wings<br />
than the allowable limit (15% of<br />
their total capital) because of the<br />
46<br />
January - March 2011<br />
The Bangladesh Accountant
current crisis in the capital<br />
market. Earlier BB directed the<br />
banks which had invested more<br />
than the ceiling to adjust the<br />
excess amount by December 31,<br />
2010.<br />
BB decided to withdraw the<br />
deadline set for the commercial<br />
banks to adjust loan that have<br />
been diverted from industrial<br />
sector to capital market. The<br />
commercial banks would now be<br />
able to adjust such loans<br />
whenever they feel comfortable.<br />
Earlier, BB set January 15, 2011,<br />
as the deadline for the banks to<br />
recover loans taken by borrowers<br />
as industrial credit but were<br />
diverted into the share market.<br />
BB has ruled out the impact of<br />
increased cash reserve<br />
requirement (CRR) on the money<br />
market. BB withdrew BDT 20 bn<br />
on December 15, 2010 by<br />
increasing CRR but injected over<br />
BDT 200 bn in last few days as<br />
liquidity support to different<br />
banks.<br />
SEC directed that investors would<br />
be now eligible for margin loan at<br />
1:2 instead of the current 1: 1.5<br />
and lifted restrictions on 14<br />
companies (which were sent to<br />
OTC market as they failed to<br />
de-materialize paper share within<br />
deadline) being traded at the spot<br />
market. Netting facilities have also<br />
been opened for all<br />
non-marginable securities.<br />
SEC relaxed the highest limit of<br />
mutual fund's (MF's) investment<br />
in the shares of a single company<br />
up to March 31, 2011. As per<br />
law, an MF is not allowed to<br />
invest more than 10% of its total<br />
scheme size in shares of a single<br />
company and 25% of the size of<br />
its all schemes in the shares of a<br />
single industry, debenture and<br />
other securities.<br />
SEC repealed the BDT 100 mn<br />
loan cap it had imposed on a<br />
single investor.<br />
SEC allowed a new investor to<br />
enjoy margin loan facilities just<br />
15 days after the opening of a<br />
beneficiary owner's account,<br />
instead of 30 days.<br />
Stock dealers from January 19,<br />
2011, are allowed to purchase<br />
shares worth up to BDT 150 mn<br />
without any margin to the<br />
exchanges. Previously, a stock<br />
dealer had to deposit a certain<br />
amount of money as margin to the<br />
exchanges for its additional trade<br />
exposure after BDT 50 mn,<br />
including own and clients'<br />
portfolios.<br />
SEC on January 19, 2011,<br />
postponed the book building<br />
method for initial public offering<br />
until further order in a bid to stop<br />
overvaluation of primary shares of<br />
companies using the method to<br />
be listed and exodus of money<br />
from the market.<br />
SEC has introduced circuit breaker<br />
on the capital market index which<br />
halts the market if the index gains<br />
or loses more than 225 points.<br />
The move came in a bid to<br />
prevent unusual fluctuation in the<br />
market but backfired on the first<br />
day (January 19, 2011) of its<br />
introduction as trading of Dhaka<br />
shares ground to an automatic<br />
halt the first 86 minutes.<br />
SEC on January 25, 2011 halved<br />
the limit of circuit breaker on<br />
individual stock in a bid to tighten<br />
the price fluctuation of shares of<br />
the company.<br />
SEC decided not to cancel or<br />
postpone the initial public<br />
offerings of Mobil Jamuna<br />
Lubricants Bangladesh and MI<br />
Cement Factory that are using the<br />
book building method suspended<br />
by the government. In<br />
consultation with the government,<br />
the regulator took the decision on<br />
January 25, 2011, as sponsor<br />
directors of the companies<br />
promised to buy the shares back,<br />
if the prices go below offer prices<br />
within the first 30 days after<br />
listing.<br />
BB, after a high-level meeting on<br />
January 23 with the finance<br />
minister, directed on 15 banks to<br />
transfer their share market profits<br />
to their reserve instead of<br />
distributing those among<br />
shareholders.<br />
This paper is published with the<br />
permisssion from IDLC<br />
The Bangladesh Accountant January - March 2011 47
Some Quotable Quotes<br />
on the Stock Market<br />
“AK Chowdhury FCA, Past President, <strong>ICAB</strong> & 52 Co-Founder, CSE – It would appear that because of<br />
abrupt policy shift by SEC & BB & usual manipulation undertaken by a syndicate of DSE & over agile<br />
greed of merchant banks: the share market is losing confidence and hence, the crash”<br />
- AK Chowdhury FCA<br />
“• The first rule is not to lose. The second rule is not to forget the first rule.”<br />
• I never attempt to make money on the stock market. I buy on the assumption that they could close<br />
the market the next day and not reopen it for five years.<br />
• If past history was all there was to the game, the richest people would be librarians.<br />
• Wall Street is the only place that people ride to in a Rolls Royce to get advice from those who take<br />
the subway.<br />
• Only buy something that you'd be perfectly happy to hold if the market shut down for ten years.<br />
• Be fearful when the world is greedy and be greedy when the world is fearful.<br />
• Wide diversification is only required when investors do not understand what they are doing.<br />
• It's almost a mathematical impossibility to imagine that, out of the thousands of things for sale on a<br />
given day, the most attractively priced is the one being sold by a knowledgeable seller (company<br />
insiders) to a less-knowledgeable buyer (investors)<br />
- Warren Buffett<br />
The Bangladesh Accountant January - March 2011 49
“The stock market is but a mirror which provides an image of the underlying or fundamental economic<br />
situation. Cause and effect run from the economy to the stock market, never the reverse. In 1929 the<br />
economy was headed for trouble. Eventually that trouble was violently reflected in Wall Street.”<br />
- John Kenneth Galbraith<br />
“The things that will destroy America are prosperity-at-any- price, peace-at- any-price, safety-first instead<br />
of duty-first, the love of soft living, and the get-rich-quick theory of life.”<br />
- Theodore Roosevelt<br />
“October: This is one of the peculiarly dangerous months to speculate in stocks. The others are July,<br />
January, September, April, November, May, March, June, December, August and February.”<br />
- Mark Twain<br />
“There’s no denying that a collapse in stock prices today would pose serious macroeconomic challenges<br />
for the United States. Consumer spending would slow, and the U.S. economy would become less of a<br />
magnet for foreign investors. Economic growth, which in any case has recently been at unsustainable<br />
levels, would decline somewhat. History proves, however, that a smart central bank can protect the<br />
economy and the financial sector from the nastier side effects of a stock market collapse.”<br />
- Ben Bernanke<br />
“Money is like manure. You have to spread it around or it smells.”<br />
- J. Paul Getty<br />
“Wall Street is one big turf war. By benefiting one person you are disadvantaging another person.“<br />
- Bernard Madoff<br />
“Stock market bubbles don't grow out of thin air. They have a solid basis in reality, but reality as distorted<br />
by a misconception.”<br />
- George Sorost<br />
50<br />
January - March 2011<br />
The Bangladesh Accountant
“The Chinese use two brush strokes to write the word 'crisis'. One brush stroke stands for danger; the<br />
other for opportunity. In a crisis, be aware of the danger-but recognize the opportunity.”<br />
- John F Kennedy<br />
“Investors have very short memories.”<br />
- Roman Abramovich<br />
“Buy when the cannons are firing, and sell when the trumpets are blowing.”<br />
- Nathan Rothschild<br />
“The time of maximum pessimism is the best time to buy and the time of maximum optimism is the best<br />
time to sell. Outperforming the majority of investors requires doing what they are not doing. Buy when<br />
pessimism is at its maximum”<br />
- Sir John M. Templeton<br />
“Life is all about mitigation and management of risk and not of its elimination and avoidance”<br />
- Unknown<br />
“At particular times, a great deal of stupid people have a great deal of stupid money...the money of these<br />
people - the blind capital - is particularly large and craving. It seeks someone to devour it and there is a<br />
plethora; it finds someone and there is speculation; it is devoured and there's panic."<br />
- Walter Bagehot<br />
“Blaming speculators as a response to financial crisis goes back at least to the Greeks. It's almost always<br />
the wrong response.”<br />
- Larry Summers<br />
“Global capital markets pose the same kinds of problems that jet planes do. They are faster, more<br />
comfortable, and they get you where you are going better. But the crashes are much more spectacular.”<br />
- Larry Summers<br />
The Bangladesh Accountant January - March 2011 51
“The stock market is filled with individuals who know the price of everything, but the value of nothing.”<br />
- Philip Fisher<br />
“A market is the combined behavior of thousands of people responding to information, misinformation<br />
and whim.”<br />
- Kenneth Chang<br />
“Wall Street people learn nothing and forget everything.“<br />
- Benjamin Graham<br />
“Spend at least as much time researching a stock as you would choosing a refrigerator.”<br />
- Peter Lynch<br />
“The average man doesn’t wish to be told that it is a bull or a bear market. What he desires is to be told<br />
specifically which particular stock to buy or sell. He wants to get something for nothing. He does not<br />
wish to work. He doesn’t even wish to have to think.”<br />
- Jesse Livermore<br />
“In this business if you're good, you're right six times out of ten. You're never going to be right nine times<br />
out of ten.”<br />
- Peter Lynch<br />
“You can say on one hand the market is crazy but it's not 1999. People have had their medicine from<br />
over exuberance. I find it really interesting that those two businesses, Yahoo! and Google, which are just<br />
online advertising businesses, are valued at more than the media behemoths in America.”<br />
- James Packer<br />
“Before this century is over, the Dow Jones Industrial Average will probably be over one million versus<br />
around 10,000 now. So for the long-term, the outlook is tremendously bullish if you buy stocks blindly<br />
to keep for a century.”<br />
- John Templeton<br />
“Men think in herds, go mad in herds, but recover their senses one by one.”<br />
- Charles Mackay<br />
52<br />
January - March 2011 The Bangladesh Accountant
“Most people try to maximize the number of times they are right, the real question is how much you<br />
make when you are right.”<br />
- Bill Miller<br />
“The list of qualities [an investor should have] includes patience, self-reliance, common sense, a tolerance<br />
for pain, open-mindedness, detachment, persistence, humility, flexibility, a willingness to do<br />
independent research, an equal willingness to admit mistakes, and the ability to ignore general panic.”<br />
- Peter Lynch<br />
“The best investors are like professional socialites. They always know where the next party is going to be<br />
held. They arrive early and make sure that they depart well before the end, leaving the mob to swill the<br />
last tasteless dregs.”<br />
- The Economist<br />
“Investing is a lot like sailing - you can go anywhere you wish without forecasting the wind. What is<br />
essential is to measure the wind properly and often, and align yourself with prevailing conditions.”<br />
- John Hussman<br />
“The first principle of winning is not to lose. Never worry about what we don't make, worry about what<br />
we might lose.”<br />
- J. Dennis Delafield<br />
“History of business shows that advances in technology are not reaped by those that make technology but<br />
rather those who use it.”<br />
- Ralph Wanger<br />
“Debt is the worst poverty.”<br />
- Thomas Fuller<br />
“Today, there are three kinds of people: the haves, the have-nots, and the have-not-paid-for-whatthey-haves.”<br />
- Earl Wilson<br />
The Bangladesh Accountant January - March 2011 53
“Oh, for the good old days when people would stop Christmas shopping when they ran out of money.”<br />
- Unknown<br />
“Food, Water, Shelter, Air, Sleep, Societal inflation has expanded need into greed. Suddenly the basic<br />
survival needs also include a cell phone, cable TV, and French manicured fingernails.... We've become<br />
the absolute biggest whiners of all human history with the absolute smallest justification for whining.”<br />
- Charlie Diekatze<br />
“The human race has had long experience and a fine tradition in surviving adversity. But we now face a<br />
task for which we have little experience, the task of surviving prosperity.”<br />
- Alan Gregg<br />
“When government accepts responsibility for people, then people no longer take responsibility for<br />
themselves.”<br />
- George Pataki<br />
“Debt is the slavery of the free”<br />
- Publilius Syrus<br />
“Capitalism is license to steal; the government simply regulates who steals and how much.”<br />
- Abbie Hoffman<br />
“Capitalism without failure is like religion without sin.”<br />
- Allan Meltzer<br />
“You want to know a sure way to lose money? Buy what’s popular and don’t know what you are<br />
investing in.”<br />
- Marty Whitman<br />
Source : Internet<br />
54<br />
January - March 2011<br />
The Bangladesh Accountant
Who says Accountants<br />
are Boring People!<br />
Sohel Kasem, FCA<br />
Well, a million people at least,<br />
including my mother and my<br />
wife. Remember the famous<br />
Monty Python sketch where John<br />
Cleese is the Vocational<br />
Guidance Counsellor and<br />
Michael Palin is a Chartered<br />
Accountant wishing to spice up<br />
his life by becoming a lion tamer.<br />
Part of the conversation goes like<br />
this:<br />
"Vocational Guidance Counsellor<br />
(John Cleese): Well yes, Mr.<br />
Anchovy, but in your report here<br />
it says that you are an extremely<br />
dull person. Our experts describe<br />
you as an appallingly dull fellow,<br />
unimaginative, timid, lacking in<br />
initiative, spineless, easily<br />
dominated, no sense of humour,<br />
tedious company, and<br />
irresponsibly drab and awful. And<br />
whereas in most professions these<br />
would be considerable<br />
drawbacks, in accounting they<br />
are a positive boon.<br />
Anchovy (Michael Palin): But<br />
don't you see? I'm only as awful<br />
as this because accountancy does<br />
this to people..."<br />
John Cleese (left) sorting out Michael<br />
Palin, a chartered accountant, who wishes<br />
to be a lion tamer in this Monty Python<br />
sketch.<br />
That sketch was first aired on<br />
December 21, 1969 and more<br />
than 40 years later, accountants<br />
all over the world claim that they<br />
still haven’t recovered from it.<br />
Go back in time even further and<br />
we have Charles Dickens having a<br />
go at us:<br />
"Meek men, hunched over dusty<br />
ledgers, perched on high stools,<br />
peering beneath green eyeshades.<br />
But Charles Dickens also gave<br />
perhaps a fitting definition of<br />
good financial management,<br />
which our friends in Wall Street<br />
would have done well to heed. In<br />
his 1850 novel, David<br />
Copperfield, Mr. Micawber<br />
observes quite profoundly:<br />
"Annual income twenty pounds,<br />
annual expenditure nineteen<br />
pounds nineteen and six, result<br />
happiness. Annual income twenty<br />
pounds, annual expenditure<br />
twenty pounds nought and six,<br />
result misery."<br />
Okay, so we have established that<br />
Accountants are not your most<br />
exciting people, but still, we serve<br />
a purpose and a very important<br />
one at that. We fulfill the need to<br />
keep accurate and reliable<br />
financial records and ensure there<br />
is good financial management and<br />
discipline, for after all, doesn’t<br />
The Bangladesh Accountant January - March 2011 55
everything eventually boil down<br />
to money? As businesses grow in<br />
size and complexity transcending<br />
national boundaries, it is<br />
necessary to understand the<br />
intricacies of balance sheets,<br />
profit and loss accounts and cash<br />
flows, and in general how<br />
financial statements are prepared<br />
and presented. The role of the<br />
auditor also becomes crucial in<br />
acting as an independent overseer<br />
of truth and fairness of such<br />
financial statements. His<br />
attestation is relied upon by<br />
investors and stakeholders in<br />
making investment decisions.<br />
Clearly good accounting systems<br />
and financial management require<br />
good accountants and their<br />
necessity in today’s business<br />
world is absolutely vital.<br />
What is Accounting<br />
Accounting is defined by the<br />
American Institute of Certified<br />
Public Accountants (AICPA) as<br />
"the art of recording, classifying,<br />
to employees, managers,<br />
owner-managers and auditors.<br />
Management accounting is<br />
concerned primarily with<br />
providing a basis for making<br />
management or operating<br />
decisions. Accounting that<br />
provides information to people<br />
outside the business entity is<br />
called financial accounting and<br />
provides information to present<br />
and potential shareholders,<br />
creditors such as banks or<br />
vendors, financial analysts,<br />
economists, and government<br />
agencies. Because these users<br />
have different needs, the<br />
presentation of financial accounts<br />
is very structured and subject to<br />
many more rules than<br />
management accounting. The<br />
body of rules that governs<br />
financial accounting is referred to<br />
as International Accounting<br />
Standards (IAS), International<br />
Financial Reporting Standards<br />
(IFRS) and in the USA, as<br />
Generally Accepted Accounting<br />
Principles, or GAAP.<br />
Fra Lucas Pacioli (c 1445 – 1514), the<br />
Father of modern day Accounting<br />
devised the concept of Double<br />
Entry bookkeeping, still the<br />
cornerstone of modern day<br />
accounting. In this model, he<br />
proposed the idea of two sides of<br />
any financial transaction – a debit<br />
and a credit. Sophisticated and<br />
computerized accounting<br />
software and all the present day<br />
and futuristic models all rely on<br />
this very simple principle – for<br />
every entry, there must be an<br />
equal and opposite entry. Rather<br />
like Newton’s Third Law of<br />
Motion – for every action there<br />
must be an equal and opposite<br />
“The earliest records of Accounting date back more<br />
than 7,000 years to the Middle East and were found<br />
among the ruins of Babylon, Assyria and Sumeria,<br />
and summarizing in a significant<br />
manner and in terms of money,<br />
transactions and events which are,<br />
in part at least, of financial<br />
character, and interpreting the<br />
results thereof.”<br />
Today, accounting is called "the<br />
language of business" because it<br />
is the vehicle for reporting<br />
financial information about a<br />
business entity to many different<br />
groups of people. Accounting that<br />
concentrates on reporting to<br />
people inside the business entity<br />
is called management accounting<br />
and is used to provide information<br />
History<br />
The earliest records of Accounting<br />
date back more than 7,000 years<br />
to the Middle East and were found<br />
among the ruins of Babylon,<br />
Assyria and Sumeria, where<br />
people used primitive accounting<br />
methods to keep track of goats<br />
and herds. The Romans used<br />
accounting extensively and there<br />
are plenty of references in ancient<br />
Islamic and Hindu scriptures.<br />
Modern day accounting traces its<br />
roots to the 14th century when an<br />
Italian monk, Lucas Pacioli,<br />
reaction. See, we are a very<br />
scientific discipline.<br />
Double Entry system ultimately<br />
facilitated the development of<br />
joint stock companies, allowing<br />
investors to gain firsthand<br />
knowledge of their operations<br />
through the use of accounts<br />
prepared to provide this<br />
information. This development<br />
resulted in a split of accounting<br />
systems for internal (i.e.<br />
management accounting) and<br />
external (i.e. financial accounting)<br />
purposes, and subsequently also<br />
in accounting and disclosure<br />
56<br />
January - March 2011<br />
The Bangladesh Accountant
egulations and a growing need<br />
for independent attestation of<br />
external accounts by auditors.<br />
Accounting as a<br />
Professional Qualification<br />
A professional qualification in<br />
accounting opens up many doors<br />
to finance, banking, management,<br />
audit and assurance, due<br />
diligence, tax and advisory<br />
services and is definitely a career<br />
worth thinking about. Accounting<br />
is mainly a post graduate<br />
professional qualification,<br />
although in recent times the doors<br />
have been opened up to A Level<br />
students also. There are several<br />
types of professional<br />
qualifications, the major ones<br />
being listed below:<br />
English system<br />
• Chartered Accountancy (CA)<br />
• Cost and Management<br />
Accountancy (CIMA)<br />
• ACCA<br />
American System<br />
• CPA<br />
Chartered Accountancy<br />
(CA)<br />
Chartered Accountancy is an<br />
English origin qualification and<br />
derives its name and roots from<br />
the Royal Charter granted by<br />
Queen Victoria of England in<br />
1880 and is still regarded as the<br />
most prestigious accountancy<br />
qualification in the world. It is<br />
followed by the former<br />
Commonwealth countries,<br />
including Bangladesh and its<br />
South Asian neighbours, Australia,<br />
Canada, New Zealand, South<br />
Africa, Scotland and Ireland. The<br />
English Institute, full name – the<br />
Institute of Chartered Accountants<br />
in England & Wales, now has<br />
about 167,000 qualified<br />
accountants.<br />
The Chartered Accountancy<br />
qualification generally<br />
encompasses a 3 year<br />
apprenticeship period, referred to<br />
as Articles, with a licensed<br />
professional accounting firm. In<br />
addition to completing this<br />
Articleship period, the student<br />
also has to pass 2 or 3 sets of<br />
Professional exams in order to call<br />
himself a Chartered Accountant.<br />
Once they have qualified to<br />
become a Chartered Accountant,<br />
they can then apply for<br />
membership with the respective<br />
Institute of Chartered Accountants<br />
in their country and are then<br />
referred to as either an ACA<br />
(Associate Chartered Accountant)<br />
or an FCA (Fellow Chartered<br />
Accountant), the distinction being<br />
only in terms of seniority. ACAs<br />
have to complete 5 years of<br />
continuous membership and<br />
attain a certain number of CPD<br />
hours (Continuous Professional<br />
Development) after qualification<br />
to become an FCA.<br />
The local Institute of Chartered<br />
Accountants of Bangladesh has<br />
also recently signed an MOU with<br />
the English Institute (ICAEW) and<br />
changed its syllabus and<br />
examination procedures to bring<br />
us in line with the ICAEW<br />
qualification, thereby granting us<br />
access to international recognition<br />
for the first time.<br />
See <strong>ICAB</strong> website for further<br />
information: www.icab.org.bd<br />
The Bangladesh Accountant January - March 2011 57
Number of Qualified Accountants worldwide (approx. numbers as of July 2010)<br />
UK USA Canada Australia South Bangladesh Others Total<br />
Asia<br />
Chartered<br />
Accountants 167,000 - 75,000 50,000 207,000 1,000 62,000 562,000<br />
CIMAs 80,000 - 50,000<br />
-<br />
80,000 1,000 - 211,000<br />
ACCAs 140,000 - - - - - - 140,000<br />
CPAs - 370,000 - 129,000 - - - 499,000<br />
Total 387,000 370,000 125,000 179,000 287,000 2,000 62,000 1,412,000<br />
Prospects for Accountants<br />
in the Job Market<br />
If money is the language of<br />
business, then no one speaks it<br />
better than accountants. The<br />
growing importance of trade and<br />
industry along with the rapid<br />
growth of capital and money<br />
markets in an economically<br />
developing nation like ours has<br />
increased the importance of<br />
accountants enormously.<br />
Generally, they play a strategic<br />
role by providing professional<br />
advice, aiming to maximise<br />
profitability on behalf of their<br />
client or employer. They work in<br />
many different settings; including<br />
public-practice firms, industry and<br />
commerce, as well as in the<br />
not-for-profit and public sectors.<br />
In Bangladesh, chartered<br />
accountants work as Chief<br />
Finance Officers, Financial<br />
Controllers, Financial Advisors or<br />
Directors (Finance) and watch<br />
over the finances in the day to<br />
day management of companies.<br />
They are engaged in activities like<br />
market research, budget planning,<br />
working capital management,<br />
inventory control, policy<br />
planning, securities consultancy,<br />
etc. There are also a large<br />
number, approx 200 Bangladeshi<br />
chartered accountants, working<br />
all over the world including the<br />
USA, UK, Canada and Australia in<br />
various responsible positions in<br />
business and commerce.<br />
Conclusion<br />
To use a time worn cliché, the<br />
world is your oyster, figuratively<br />
speaking. Professionally qualified<br />
accountants are in huge demand<br />
nowadays and there is a common<br />
complaint that demand is far more<br />
than the supply. In addition to<br />
careers in businesses, banks,<br />
finance and management, there is<br />
also a big pool of accountants<br />
engaged in audit and assurance,<br />
tax and advisory services. In<br />
recent times, and particularly in<br />
the wake of spectacular financial<br />
debacles particularly in the West,<br />
e.g. Enron, there is now a strong<br />
demand for forensic accountants.<br />
This is our equivalent of a<br />
Sherlock Holmes detective plot,<br />
whereby an army of accountants<br />
sifts through endless paper trails<br />
to unravel a maze of financial<br />
crimes and felonies.<br />
The financial rewards for a newly<br />
qualified accountant are far more<br />
than those afforded to a newly<br />
qualified doctor, engineer or an IT<br />
specialist. Moreover, it offers a<br />
job stability rarely found in any<br />
other career. So, for young men<br />
and ladies, if you haven’t already<br />
decided on a career, think again.<br />
You could do worse than opt for a<br />
career in Accounting – boring or<br />
not!<br />
The Author is a Council Member &<br />
Past President, <strong>ICAB</strong> &<br />
Senior Partner, A Qasem & Co.<br />
Chartered Accountants<br />
58<br />
January - March 2011<br />
The Bangladesh Accountant
Corporate Social<br />
Responsibility (CSR)<br />
A Wahab FCA<br />
The concept, Corporate Social<br />
Responsibility (CSR) has been<br />
gaining importance in recent<br />
years among the business<br />
community of Bangladesh<br />
although it came into common<br />
use in early seventy's of the last<br />
century when multinational<br />
corporations came into scene<br />
worldwide. The CSR is the<br />
deliberate inclusion of public<br />
interests into corporate decision<br />
making and the honoring of a<br />
triple bottom line: People, Planet,<br />
Profit. CSR focused business<br />
would proactively promote the<br />
public interests by encouraging<br />
community growth and<br />
development of various social<br />
issues like Environmental<br />
Improvement, Economic<br />
Development as well as Social<br />
Development. Among the<br />
environmental issues, CSR deals<br />
with global warming, geological<br />
balance, pure water management,<br />
carbon emission, city<br />
beautification and waste<br />
management, sea water level.<br />
CSR deals with Agricultural<br />
production and processing, crop<br />
diversification, employment<br />
generation, education and training<br />
of human resources in the<br />
Economic Sector. In the same way<br />
CSR takes care of investing for<br />
women's right issues, extending<br />
donations to HIV/AIDS campaign<br />
agencies, welfare activities for<br />
disabled, donations for public<br />
universities, relief activities after<br />
natural disaster and calamities,<br />
welfare activities for grassroots<br />
children and acid victims etc.,<br />
under its Social Development<br />
programme.<br />
Under Community based<br />
development approach the CSR is<br />
becoming more widely accepted<br />
and in this approach corporations<br />
work with local communities to<br />
better the social life and other<br />
aspects of society. For examples,<br />
the Shell Foundation set up a<br />
project in Flower Valley of South<br />
Africa by setting up an early<br />
learning centre to help educate<br />
the community's children as well<br />
as develop new skills for the<br />
adults. Often companies<br />
participate in the activities for<br />
establishing education facilities<br />
for adults and for HIV/AIDS<br />
education programs. Most of<br />
these projects are located in<br />
Africa as the continent suffers<br />
badly from HIV/AIDS diseases.<br />
There is another approach of CSR<br />
in the form of philanthropy<br />
including donations and aid given<br />
to local organizations and<br />
impoverished communities in the<br />
developing countries.<br />
The sense of rendering social<br />
services by business houses to the<br />
members of the community is a<br />
good sign for the society to<br />
develop itself in the fields, the<br />
society needs. This is in addition<br />
to the main objective of the<br />
business houses to earn profit and<br />
in return to share a portion of it<br />
along with the members of the<br />
society for the improvement of<br />
their social standard and<br />
improvement of life style.<br />
In the recent years the Govt. of<br />
Bangladesh has been encouraging<br />
the Business Community to<br />
extend their support to the<br />
members of the Society in the<br />
form of CSR. As a tool of<br />
regulatory guidance in this<br />
The Bangladesh Accountant January - March 2011 59
espect, the Ministry of Finance,<br />
Internal Resources Division, Govt.<br />
of Bangladesh has recently issued<br />
a SRO numbered as 270<br />
AvBb/AvqKi/2010 dated 1st July<br />
2010 with certain directives in<br />
respect of the CSR and granting<br />
incentives in the form of waiver of<br />
tax @ 10% on the amount spent<br />
for CSR.<br />
1) Economic field covering the<br />
subjects of agricultural<br />
production and processing,<br />
crop diversification,<br />
employment generation,<br />
Education and Training for<br />
improvement of human<br />
resources and the allied<br />
matters, such as donations to<br />
institutions to set up computer<br />
lab and training institute of<br />
Information Technology,<br />
implementation program of<br />
English learning in Non Govt.<br />
education institutions having<br />
been enlisted for MPO and to<br />
boost up the earnings capacity<br />
exchange for the country.<br />
2) Environmental field covering<br />
the issues of global warming,<br />
Ecological balance, Pure<br />
Water Management, setting up<br />
Water Supply Institutions,<br />
Carbon Emission, Sea Water<br />
level, forestry, City<br />
Beautification and Waste<br />
Management and other allied<br />
subjects such as donations to<br />
the institutions engaged in<br />
providing hygienic drainage<br />
and sewerage services in the<br />
hill tracts districts, river<br />
erosion and char areas.<br />
3) Social Development field<br />
covering the issues like<br />
Investing for Women's Rights<br />
Issues, extending donations to<br />
HIV/AIDS campaign Agencies,<br />
Welfare activities for disabled<br />
and handicapped members of<br />
the Society, donations for<br />
public universities, relief<br />
Activities after natural<br />
calamities and disaster<br />
treatment of poor patients who<br />
suffer from cancer, kidney,<br />
liver, thalamasia, eye and<br />
cardio diseases etc. and<br />
donations to the institutions<br />
engaged in the research of<br />
subjects connected with<br />
liberation war and for the<br />
welfare of freedom fighters<br />
and to uphold the cause and<br />
spirit of the liberation war and<br />
for the revival of such feeling.<br />
As per statutory requirement of an<br />
organization eligible for the<br />
facilities under SRO mentioned<br />
earlier, the undertaking shall have<br />
to fulfill the following conditions<br />
in respect of CSR.<br />
1) That such an undertaking shall<br />
have to pay regularly the<br />
salary and allowances of its<br />
employees including P. F and<br />
gratuity and health benefits on<br />
the basis of the principle<br />
"charity begins at home". In<br />
addition, in case of an<br />
“<br />
The CSR is the deliberate inclusion of public interests<br />
into corporate decision making and the honoring of<br />
a triple bottom line: People, Planet, Profit”<br />
of the members of the Society,<br />
donations to Govt. approved<br />
educational institutions<br />
engaged in the technical and<br />
vocational training to the poor<br />
and meritorious students and<br />
to develop their earning<br />
capacity, donations to the<br />
institutions engaged in the<br />
development of infrastructure<br />
for sports and imparting<br />
training thereof in the national<br />
level and also donations to<br />
such institutions engaged in<br />
imparting vocational training<br />
to skilled and unskilled labour<br />
force for its exports abroad to<br />
earn valuable foreign<br />
management activities, welfare<br />
activities for grassroot children<br />
and acid victims and donations<br />
for establishment of old homes<br />
and shelter centers for the<br />
destitute and other matters<br />
such as donations to the<br />
institutions engaged in the<br />
treatment of cancer, leprosy,<br />
cataract surgery etc. and<br />
donations to the institutions<br />
engaged in the field of family<br />
planning and birth control and<br />
to those NGO's who distribute<br />
the materials of family<br />
planning and birth control free<br />
of cost, donations to the<br />
specialized hospitals for free<br />
industrial undertaking it must<br />
have a waste treatment plant<br />
as per law.<br />
2) The undertaking shall have to<br />
pay regularly the govt. dues<br />
like Income Tax, VAT and<br />
other taxes and duty. In case of<br />
an undertaking taking loan<br />
from any bank or financial<br />
institution, it must have settled<br />
the dues regularly.<br />
3) Such an undertaking shall<br />
make payment of grant or<br />
donation only to such<br />
institutions as are, approved by<br />
the Govt. for CSR activities.<br />
60<br />
January - March 2011<br />
The Bangladesh Accountant
4) Such an undertaking shall<br />
comply with the regulations<br />
under the labour law of the<br />
country and shall discourage<br />
the employment of child<br />
labour.<br />
5) Such an undertaking approved<br />
for CSR facilities shall not<br />
charge the related amount<br />
spent for the CSR purposes in<br />
its Manufacturing, Trading and<br />
Profit and Loss Account.<br />
6) The undertaking claiming Tax<br />
Holiday shall have to obtain a<br />
clearance certificate for the<br />
relevant income year from the<br />
Directorate of El1vironment.<br />
7) The concerned undertaking<br />
claiming the CSR facilities<br />
under the Income Tax Law<br />
shall have to maintain<br />
necessary books and records<br />
for CSR activities and shall<br />
submit necessary evidence in<br />
support of the amount actually<br />
spent, to the concerned OCT;<br />
and<br />
8) The undertaking rendering the<br />
CSR services shall have to<br />
obtain an Income Tax Rebate<br />
Certificate from the National<br />
Board of Revenue on the basis<br />
of its work plan for the tax<br />
rebate under the CSR scheme<br />
in recognition of its approval<br />
for CSR.<br />
Because of this incentive granted<br />
to the organizations for CSR<br />
services there is response in a big<br />
way from large number of<br />
undertakings which is evidenced<br />
by the sign boards with slogans of<br />
addressing the different social<br />
issues as well as beautification of<br />
the roads and establishments at<br />
cities and at different locations of<br />
the country. But there is still<br />
scope of broadening the scope of<br />
operations of the concept by<br />
attracting more business houses in<br />
the net work of CSR as a part of<br />
the total development of the<br />
entire nation.<br />
To attain this objective an attempt<br />
should be made more seriously in<br />
this respect and the organization<br />
should first manage its affairs on<br />
the basis of the principle "charity<br />
begins at home" by providing the<br />
welfare services to its own<br />
employees in the form of paying<br />
salaries, provident fund, and<br />
gratuity and health facilities<br />
regularly.<br />
As per demand of the business<br />
community for a long time, the<br />
Govt. has allowed this incentive<br />
for CSR services by allowing<br />
rebate of tax at 10% of the<br />
amount spent for the services so<br />
rendered. The business<br />
community should take advantage<br />
of it but necessary cautions<br />
should be taken so that nobody<br />
can misuse the facilities offered<br />
by the Govt. To ensure its proper<br />
use the accounts should be<br />
audited regularly. For this purpose<br />
social accounting, auditing and<br />
reporting by every corporate<br />
organization should be ensured as<br />
the social accounts, a concept<br />
describing the communication of<br />
social and environmental effects<br />
of a company's economic actions<br />
to particular interest groups within<br />
society and to society at large, is<br />
an important element of CSR.<br />
There are criticisms and concerns<br />
related to the CSR. The<br />
proponents of the CSR debate on<br />
the concerns linked to the CSR.<br />
This include CSR's relationship to<br />
the fundamental purpose, nature<br />
of business and questionable<br />
motives for engaging in CSR as<br />
are likely to involve in insincerity<br />
and hypocrisy. Some critics say<br />
that through CSR activities the big<br />
companies like British America<br />
Tobacco, The petroleum giant B.<br />
P. which are well known for its<br />
high profile advertising campaign<br />
on environment aspects (of its<br />
operations) and McDonald to<br />
distract the public opinion from<br />
ethical questions posed by their<br />
core operations. They argue that<br />
some corporations engage<br />
themselves in CSR activities for<br />
enjoying commercial benefit by<br />
raising their reputation with<br />
public as well as the govt. They<br />
suggest that the corporations<br />
which exist solely to maximize<br />
their profit are unable to deliver<br />
services to the society as a whole.<br />
The recent incident of oil spills of<br />
B. P. in the Mexico gulf is an<br />
example of disasters causing<br />
damage to the environment which<br />
will take a long time to recover.<br />
However, the good effects of the<br />
CSR program always outweigh its<br />
drawbacks.<br />
In a developing economy like<br />
ours we now need more and<br />
more participation and<br />
co-operation of the corporate<br />
The Bangladesh Accountant January - March 2011 61
ody in the social development<br />
sector of the country than any<br />
time before. Through CSR, the<br />
said organizations can render<br />
better services to the society in<br />
the improvement of the programs<br />
involved in the economic,<br />
environment and social<br />
development field of the country.<br />
In return, the business community<br />
should get some tax benefit as<br />
allowed for the activities under<br />
the CSR net work duly regulated<br />
by the Govt.<br />
In a meeting organized by<br />
Management and Resource<br />
Development Institute (MRDI) in<br />
association with Manusher Jonno<br />
Foundation (MJF) with the<br />
business community of<br />
Chittagong the speakers stressed<br />
on the need for developing a<br />
culture in the country to<br />
encourage business to be more<br />
socially responsible. They have<br />
appreciated the Govt. move to<br />
allow 10% tax rebate on the<br />
amount spent for CSR. In another<br />
meeting held in Khulna towards<br />
middle of December 2010 under<br />
the sponsorship of same group it<br />
was the opinion of the speakers<br />
and the analyst of the meeting<br />
that the country can<br />
institutionalize corporate social<br />
responsibility (CSR) interventions<br />
to deal with malnutrition,<br />
education, health, employment<br />
and poverty.<br />
In the meeting Rokia Afzal<br />
Rahman, former caretaker govt.<br />
adviser and the president of<br />
Bangladesh Employers' Federation<br />
said that CSR is coming out of the<br />
purview of the doing social good<br />
and is fast becoming a business<br />
necessity. She emphasized upon<br />
policy support and incentive from<br />
the govt. to encourage corporate<br />
sector to be more active in CSR.<br />
Syed Md. Aminul Karim, member<br />
of the NBR, present in the<br />
meeting referred to the revised<br />
Statutory Regulatory Order (SRO)<br />
on CSR and hoped it will facilitate<br />
and encourage the business<br />
community to come up with more<br />
CSR activities. In the course of his<br />
deliberation, Mr. Hasibur<br />
Rahman, Executive Director of<br />
MRDI said CSR is recognized<br />
globally as a strong process for<br />
the corporate entities to serve<br />
community needs. According to<br />
them proper utilization of the CSR<br />
fund can be a key factor in<br />
eliminating poverty. In this<br />
connection some of the learned<br />
speakers has sought a working<br />
definition of C.S.R in the context<br />
of Bangladesh pointing to the<br />
necessity to differentiate among<br />
CSR, philanthropy and charity.<br />
However, these noble services to<br />
the society in whatever form it<br />
may come are getting focus<br />
gradually. It is the expectation of<br />
the members of the society that<br />
business persons should come<br />
forward and widen the periphery<br />
of activities under their corporate<br />
social responsibility with a view<br />
to boosting up education and<br />
having pollution free environment<br />
and to alleviate poverty in the<br />
country for the betterment of the<br />
entire nation and it should be<br />
treated as a war declared against<br />
poverty, illiteracy, Malnutrition<br />
and pollution of all kinds.<br />
The Author is a Member of <strong>ICAB</strong> &<br />
Senior Partner, A Wahab & Co.<br />
Chartered Accountants<br />
62<br />
January - March 2011<br />
The Bangladesh Accountant
The Flowering of Kaizen<br />
Business Leaders Have<br />
always sought to increase<br />
efficiency, quality and output.<br />
Many theories on how to achieve<br />
this become temporarily<br />
fashionable before fading into<br />
obscurity. But one idea seems to<br />
have taken root across the globe<br />
and is being adapted for use in an<br />
astonishing number of different<br />
settings.<br />
Following World War II, Japanese<br />
industry was hampered by a<br />
tendency to concentrate on<br />
manufacturing cheap but inferior<br />
copies of Western products. To<br />
rectify this, they engaged business<br />
experts from the United States<br />
whose advice sowed the seeds for<br />
the flowering of “Kaizen” and<br />
subsequent commercial success.<br />
Kaizen is a Japanese word<br />
meaning “improvement” (or<br />
change for the better) and is<br />
closely associated with the<br />
successful expansion of Japanese<br />
enterprise. It is a principle that<br />
advocates the total involvement of<br />
an organization in improving its<br />
activities at every level.<br />
This was a move away from the<br />
traditional top down form of<br />
sometimes repressive<br />
management and , instead,<br />
encouraged the workforce at each<br />
stage of a process to identify and<br />
implement improvements to their<br />
individual contributions.<br />
The idea was then extended so<br />
that instead of engaging in a<br />
one-off brainstorm of ideas, staff<br />
were encouraged to participate is<br />
a continuous process of positive<br />
change which enabled the<br />
end-product to be consistently at<br />
the leading edge of innovation<br />
and quality. This basic idea is<br />
now more commonly termed<br />
“Continuous Improvement” (CI).<br />
Nothing New<br />
Although Kaizen and its offshoots<br />
may look like a breakthrough in<br />
organizational management, it<br />
could be argued that its ideas are<br />
simply a development of other<br />
systems that have been exploited<br />
over many years. In the 18th<br />
Century, for example, a<br />
Frenchman named Emile Coue<br />
devised a personal<br />
self-improvement programme<br />
from which came the repeated<br />
mantra, “Every day in every way, I<br />
am getting better and better”. And<br />
a saying in the British Army when<br />
preparing for action is that “There<br />
is always one more thing to do”.<br />
So what has made the Kaizen<br />
system of continuous<br />
improvement the model for others<br />
to follow? It was probably a book,<br />
Kaizen – the key to Japan’s<br />
Economic Success by Masaaki<br />
Lmai, that kick-started the<br />
revolution.<br />
It has also produced a rash of<br />
similar theories and a new lexicon<br />
of terms relating to the process:<br />
Lean Thinking; Total Quality<br />
Management; Frugal Innovation,<br />
and more.<br />
Kaizen Worldwide<br />
As the spread of CI practices has<br />
gathered pace throughout both<br />
industrial non-profit<br />
organizations, it has been<br />
accompanied by a growth in<br />
training facilities and<br />
consultancies. In 1988, the<br />
Malcolm Baldridge Award was set<br />
up in the US, recognizing Kaizen<br />
CI as an internationally credible<br />
system. By 1992 the EU had<br />
established the European<br />
Foundation of Quality<br />
Management. Both these<br />
institutions provide a yardstick by<br />
which CI success can be<br />
measured. Meanwhile, many<br />
organizations recruit directors of<br />
CI and specialist posts can be<br />
found from breweries in Canada<br />
to medical health centres in<br />
Singapore. There are kaizen<br />
courses in Russian graduate<br />
schools and the International<br />
Kaizen Institute, established by<br />
Masaaki Lmai in 1986, operates in<br />
a large number of countries.<br />
Extract from G4S International<br />
Issue 410<br />
The Bangladesh Accountant January - March 2011 63
Opportunities and Challenges for<br />
Adoption of IFRS for SMEs in Bangladesh<br />
Md. Shahadat Hossain FCA<br />
On July 2009 the International<br />
Accounting Standards Board<br />
(IASB) published an International<br />
Financial Reporting Standard<br />
(IFRS) designed for use by small<br />
and medium sized entities<br />
(SME).That standard is the<br />
International Financial Reporting<br />
Standard for Small and<br />
Medium–sized Entities (IFRS for<br />
SMEs or the standard). Small and<br />
medium-sized entities are entities<br />
that do not have public<br />
accountability, and publish<br />
general purpose financial<br />
statements for external users.<br />
According to IASB’s report SMEs<br />
are estimated to represent more<br />
than 95% of all companies in the<br />
world. The objective of financial<br />
statements of a small or<br />
medium-sized entity is to provide<br />
information about the financial<br />
position, performance and cash<br />
flows of the entity that is useful<br />
for economic decision-making by<br />
a broad range of users who are<br />
not in a position to demand<br />
reports tailored to meet their<br />
particular information needs.<br />
The objective of introducing IFRS<br />
for SMEs is to ensure that financial<br />
statements provided to external<br />
users i.e banks are consistently<br />
prepared by all businesses. That<br />
does make sense when a bank or<br />
other external user is trying to<br />
evaluate the financial viability of<br />
the company. In Bangladesh IFRS<br />
for SMEs is very important<br />
because almost more than 70<br />
percent of total bank loan is<br />
disbursed to the private<br />
companies. Again more than 30<br />
percent of stock market<br />
encompasses the share of banking<br />
sector. So to ensure the depositors<br />
interest and also to ensure the<br />
interest of investors in banking<br />
sector financial discipline of small<br />
and medium sized entities need<br />
to be strengthened. For<br />
strengthening the financial<br />
discipline for SMEs there is no<br />
other alternative but to prepare<br />
financial statements according to<br />
the standard. Now the question is<br />
according to local legislation how<br />
far the standard is adoptable in<br />
Bangladesh. In Bangladesh<br />
financial statements of private<br />
limited companies i.e the entity<br />
that does not have public<br />
accountability are prepared<br />
complying with the contents of<br />
Companies Act. So it is relevant to<br />
compare the contents of the<br />
standard and that of the<br />
Companies Act. Some important<br />
issues in this regard are described<br />
below.<br />
As per the standard a<br />
complete set of financial<br />
statements of an entity shall<br />
include<br />
(a) a statement of financial<br />
position as at the reporting<br />
date.<br />
(b) a separate income statement<br />
and a separate statement of<br />
comprehensive income.<br />
(c) a statement of changes in<br />
equity for the reporting period.<br />
(d) a statement of cash flows for<br />
the reporting period.<br />
(e) notes, comprising a summary<br />
of significant accounting<br />
policies and other explanatory<br />
information.<br />
The Bangladesh Accountant January - March 2011 65
As per the Companies Act<br />
1994 financial statements<br />
includes<br />
(a) Balance sheet (Sec-183)<br />
(b) Profit and Loss Account<br />
(Sec-183)<br />
(c) Statement of changes in<br />
financial position (Sec-185,<br />
Schedule-XI, notes- f)<br />
(d) Notes (Sec-185 (1)<br />
From above it may be seen that<br />
comprisal of financial statements<br />
according to both the Companies<br />
Act and the standard is almost<br />
same, only difference is in some<br />
nomenclature. It is also<br />
mentionable here that as per the<br />
Companies Act statement of cash<br />
flows is not mandatory but<br />
preparation of this will not be<br />
violation of the Act.<br />
As regards to accounting policy<br />
the standard requires disclosure of<br />
all types of policy based on which<br />
financial statements have been<br />
prepared. These disclosures are<br />
also required as per the<br />
Companies Act. In this regard<br />
another important issue is change<br />
of accounting policy. As per the<br />
standard the nature of changes in<br />
accounting policy, the amount of<br />
adjustment needed for such<br />
changes in current period and<br />
prior period should be disclosed.<br />
Similarly as per the Companies<br />
Act, if any change in accounting<br />
policy takes place, the material<br />
effect in the current period or in<br />
subsequent periods due to such<br />
changes should be disclosed<br />
together with the reasons. The<br />
effect of the change should, if<br />
material be disclosed and<br />
quantified.<br />
Regarding recognition and<br />
measurement of fixed assets<br />
which is the most important item<br />
of private companies the standard<br />
include that the entity shall<br />
recognize the cost of an item of<br />
property, plant and equipment as<br />
an asset if, and only if, it is<br />
probable that future economic<br />
benefits associated with the item<br />
will flow to the entity, and the<br />
cost of the item can be measured<br />
reliably. An entity shall measure<br />
an item of property, plant and<br />
equipment at initial recognition at<br />
its cost and after initial<br />
recognition all item should be<br />
measured at cost less any<br />
accumulated depreciation and<br />
any accumulated impairment<br />
losses. As per the Companies Act<br />
fixed asset should be stated in the<br />
original cost and the addition<br />
thereto and deductions there from<br />
during the year under each head<br />
and the total depreciation written<br />
off or provided up to the end of<br />
the year. So it can be opined that<br />
there is no fundamental<br />
differences between the<br />
Companies Act and the standard<br />
as regards to recognition and<br />
measurement of fixed assets.<br />
As per the standard an entity shall<br />
measure inventories at the lower<br />
of cost and estimated selling price<br />
less costs to complete and sell. As<br />
per the Companies Act value of<br />
inventories to be stated in the<br />
financial statements are placed at<br />
the lower of historical cost and<br />
net realizable value. It is also<br />
mentionable here that there is no<br />
difference between the standard<br />
and the Companies Act as regards<br />
to recognizing components and<br />
calculation of cost of inventories.<br />
Main contradictory issues<br />
between IFRS and local laws are<br />
measurement of value of financial<br />
instruments. Financial instruments<br />
mean a contract that gives rise to<br />
a financial asset of one entity and<br />
a financial liability or equity<br />
instrument of another entity. In<br />
nut shell for a private company<br />
financial instrument include<br />
investment, borrowings etc. As<br />
per the standard when a financial<br />
instrument is measured initially an<br />
equity shall measure it at its fair<br />
value, which is normally the<br />
transaction price and at the end of<br />
each reporting period, an entity<br />
shall measure all financial<br />
instruments at fair value and<br />
recognize changes in fair value in<br />
profit or loss. As regards to<br />
measurement of value of<br />
investment i.e financial<br />
instrument the instruction of<br />
Companies Act is that it should be<br />
presented in financial statements<br />
showing nature of investments<br />
and mode of valuation, for<br />
example cost or market value.<br />
Aggregate book value of a<br />
company’s quoted investments<br />
and also the market value thereof<br />
shall be shown. This content of<br />
the Companies Act reveals that<br />
investment may be presented at<br />
market value in the financial<br />
statements which is completely in<br />
line with fair value presentation as<br />
per IFRS for SMEs.<br />
Intangible asset is an important<br />
and exceptional item for the<br />
private company. In this regard<br />
policy of the standard is that an<br />
entity shall recognize an<br />
intangible asset as an asset if, and<br />
only if:<br />
(a) it is probable that the expected<br />
future economic benefits that<br />
are attributable to the asset<br />
will flow to the entity;<br />
(b) the cost or value of the asset<br />
can be measured reliably; and<br />
(c) the asset does not result from<br />
expenditure incurred<br />
internally on an intangible<br />
item.<br />
An entity shall measure an<br />
intangible asset initially at cost<br />
and subsequently it will measure<br />
66<br />
January - March 2011<br />
The Bangladesh Accountant
at cost less any accumulated<br />
amortization and any<br />
accumulated impairment losses.<br />
As regards intangible assets the<br />
policy as mentioned in the<br />
Companies Act is that this will be<br />
accounted for as miscellaneous<br />
expenditure and following items<br />
will be included under this<br />
heading.<br />
(1) Preliminary Expenses<br />
(2) Expenses including<br />
commission or brokers as on<br />
underwriting or subscription<br />
of share or debentures.<br />
(3) Discount allowed on the issue<br />
of shares or debentures<br />
(4) Interest paid out of capital<br />
during construction ( also<br />
stating the rate of interest)<br />
(5) Development expenditures<br />
not adjusted<br />
(6) Other items (Specifying<br />
nature)<br />
As regards to amortization of such<br />
assets the Companies Act also<br />
contains that expenditure under<br />
the head miscellaneous<br />
expenditure, which has not been<br />
capitalized shall be written off<br />
over the years on which the<br />
benefits of such expenditure is<br />
expected to accrue, or on some<br />
other suitable basis. From both<br />
the contents of the standard and<br />
the Companies Act it is clear that<br />
there is no such contradictory<br />
issues between these two<br />
accounting guidelines of<br />
intangible assets.<br />
Provision is also another<br />
important item for true and fair<br />
presentation of financial<br />
statements. Guideline as regards<br />
to provision in the standard are<br />
that an entity shall recognize a<br />
provision only when:<br />
(a) the entity has an obligation at<br />
the reporting date as a result of<br />
a past event;<br />
(b) it is probable (ie more likely<br />
than not) that the entity will be<br />
required to transfer economic<br />
benefits in settlement; and<br />
(c)<br />
the amount of the<br />
obligation can be estimated<br />
reliably.<br />
An entity shall measure a<br />
provision at the best estimate of<br />
the amount required to settle the<br />
obligation at the reporting date.<br />
The best estimate is the amount<br />
an entity would rationally pay to<br />
settle the obligation at the end of<br />
the reporting period or to transfer<br />
it to a third party at that time. At<br />
each reporting date an entity shall<br />
review provisions and adjust them<br />
to reflect the current best estimate<br />
of the amount that would be<br />
required to settle the obligation at<br />
that reporting date. Any<br />
adjustments to the amounts<br />
previously recognized shall be<br />
recognized in profit or loss unless<br />
the provision was originally<br />
recognized as part of the cost of<br />
an asset. When a provision is<br />
measured at the present value of<br />
the amount expected to be<br />
required to settle the obligation,<br />
the unwinding of the discount<br />
shall be recognized as finance<br />
cost in profit or loss in the period<br />
it arises.<br />
As regards to provision the<br />
contents of Companies Act is that<br />
the profit and loss account shall<br />
set out the various items relating<br />
to the income and expenditure of<br />
the company arranged under most<br />
convenient heads and in<br />
particular shall disclose the<br />
aggregate, if material, of the<br />
amounts set aside to provisions<br />
made for meeting specific<br />
liabilities, contingencies of<br />
commitments. As per the<br />
Companies Act the expression of<br />
“provision” shall mean any<br />
amount written of or retained by<br />
way of providing for depreciation,<br />
renewals or diminutions in value<br />
of assets, or retained by way of<br />
providing for any known liability<br />
of which the amount can not be<br />
determined with substantial<br />
accuracy. So it is clear from above<br />
statement that the accounting<br />
procedures of “provision” as<br />
mentioned in the Companies Act<br />
are completely in line with the<br />
standard.<br />
Revenue is an important issue of a<br />
private entity. Summarized<br />
guideline in respect of<br />
measurement of revenue in the<br />
standard is that an entity shall<br />
measure revenue at the fair value<br />
of the consideration received or<br />
receivable. The fair value of the<br />
consideration received or<br />
receivable takes into account the<br />
amount of any trade discounts,<br />
prompt settlement discounts and<br />
The Bangladesh Accountant January - March 2011 67
volume rebates allowed by the<br />
entity. Revenue will include<br />
only the gross inflows of<br />
economic benefits received and<br />
receivable by the entity on its<br />
own account and exclude all<br />
amounts collected on behalf of<br />
third parties such as sales taxes,<br />
goods and services taxes and<br />
value added taxes. In an agency<br />
relationship, an entity shall<br />
include in revenue only the<br />
amount of its commission. The<br />
amounts collected on behalf of<br />
the principal are not revenue of<br />
the entity.<br />
Provision of the Companies Act as<br />
regards to recognition and<br />
measurement of<br />
revenue for a private entity is as<br />
follows<br />
• The turnover, that is the<br />
aggregate amount for which<br />
sales are affected by the<br />
company, commission paid to<br />
selling agents.<br />
• In the case of companies<br />
rendering or supplying<br />
services, the gross income<br />
derived from services<br />
rendered or supplied.<br />
• In the case of other<br />
companies, the gross income<br />
derived under different heads<br />
Here we can conclude that there<br />
is nothing noteworthy in the<br />
contents regarding accounting<br />
treatment of revenue in the<br />
Companies Act which is<br />
contradictory to the the standard.<br />
Proper treatment of events after<br />
the end of the reporting period is<br />
an essential element to reflect the<br />
financial position and operational<br />
results of a private entity.<br />
Summary of various requirements<br />
under the standard in this regard<br />
is that an entity shall adjust the<br />
amounts recognized in its<br />
financial statements, including<br />
related disclosures, to reflect<br />
adjusting events after the end of<br />
the reporting period and shall not<br />
adjust the amounts recognized in<br />
its financial statements to reflect<br />
non-adjusting events after the end<br />
of the reporting period but shall<br />
disclose the nature of the event,<br />
and an estimate of its financial<br />
effect, or a statement that such an<br />
estimate can not be made for each<br />
category of non-adjusting events<br />
after the end of the reporting<br />
period. As per content of the<br />
Companies Act as regards to<br />
events after the end of the<br />
reporting period is that asset and<br />
liabilities should be adjusted for<br />
events occurring after the balance<br />
sheet date that provide additional<br />
evidence to assist with the<br />
estimation of amounts relating to<br />
conditions existing at the balance<br />
sheet date or that indicate that the<br />
going concern assumption in<br />
relation to the whole or part of the<br />
enterprise is not appropriate.<br />
Assets and liabilities should not<br />
be adjusted for, but disclosure<br />
should be made of, those events<br />
occurring after the balance sheet<br />
date that do not affect the<br />
condition of assets or liabilities at<br />
the balance sheet date but are of<br />
such importance that<br />
non-disclosure would affect the<br />
liability of the users of the<br />
financial statements to make<br />
proper evaluations and decisions.<br />
Accounting system and disclosure<br />
requirements as to events after the<br />
end of the reporting period is very<br />
much similar with the guidelines<br />
as mentioned in the standard.<br />
Apart from recognition and<br />
measurement issue there are<br />
requirements of lot of disclosures<br />
in the financial statements of<br />
small and medium sized entity as<br />
per IFRS for SMEs but in no case<br />
contents of the Companies Act<br />
will be the hindrances of such<br />
disclosure because in the<br />
Companies Act it is mentioned<br />
that all material information<br />
should be disclosed that is<br />
necessary to make the balance<br />
sheet clear and understandable so<br />
from above comparison between<br />
contents of the Companies Act<br />
and the standard it is clear that<br />
there is no obstacle to prepare<br />
and present the financial<br />
statements of small and medium<br />
sized private entities complying<br />
the IFRS for SMEs.<br />
Though Companies Act will not<br />
be the obstacles to adopt the IFRS<br />
for SME but main challenge to<br />
adopt this standard would be<br />
dearth of proper knowledge,<br />
practice and giving due<br />
importance to account due to<br />
insufficient accountability system<br />
to prepare correct accounts by<br />
small and medium sized entities.<br />
Another important issue in this<br />
regard is tax matter. Tax is a vital<br />
issue for the businessmen of our<br />
country. Most of the businessmen<br />
would like to prepare their<br />
financial statements in such a<br />
manner so that they can get<br />
maximum benefit of tax.<br />
Moreover their remains a lot of<br />
practices followed by the tax<br />
authority which are not infavour<br />
of preparation of proper accounts<br />
such as disallowance of some<br />
actual expenditure and provision<br />
for bad debts, estimation of gross<br />
profit margin, consideration of tax<br />
deduction at source as final tax<br />
payable etc.<br />
The descriptions pinpointed<br />
above are the main challenges to<br />
adopt the IFRS for SMEs. Despite<br />
those challenges for the greater<br />
interest of profession, depositors<br />
of bank, and investors in capital<br />
market and finally to bring about<br />
the financial discipline in private<br />
sector of Bangladesh<br />
implementation of IFRS for SMEs<br />
is very essential.<br />
The Author is Vice President, <strong>ICAB</strong><br />
68<br />
January - March 2011<br />
The Bangladesh Accountant
Students’<br />
Section<br />
Sanjida Kasem<br />
FCA, FCMA is a<br />
Member of<br />
<strong>ICAB</strong> & ICMAB<br />
Partner, A Qasem & Co.<br />
Chartered Accountants<br />
A<br />
Tips for Chartered Accountancy Students<br />
Sanjida Kasem FCA, FCMA<br />
s a general rule, tips or advice should only be given when they are<br />
asked for. The students have not asked for my advice, I have written<br />
this because this may help the students in falling asleep!<br />
Jokes apart, what has been written here is actually what I have tried<br />
when I was a student in pre-historic days. Since then, the syllabus has<br />
changed, the subjects have changed, the teachers, classrooms, books,<br />
everything has changed. Only one thing hasn’t, the pass rate in CA<br />
exams is still low, and the students still feel the exams are hard to pass.<br />
While everyone has their own particular effective method of studying, a<br />
few things work for all. Let’s take a look at them:<br />
1. Maintain a healthy lifestyle: Eat and sleep regularly, do some<br />
exercise everyday, in short, take good care of yourself. How does it<br />
help your studies? If you are not healthy, or suffering from any<br />
deficiencies, you won’t be able to study properly. You will be tired<br />
easily, will lose your temper often, and you will generally make<br />
yourself unpopular with all those around you!<br />
Do not take any anti-depressant, stimulant, or anti-sleeping drugs<br />
without consulting a physician.<br />
2. Dress well, groom yourself well, maintain a pleasant and positive<br />
attitude: This will increase your self-confidence, will improve your<br />
relationship with others, and will nurture a feeling of hope and<br />
optimism. This is very crucial for success.<br />
3. Study regularly: As opposed to studying 18 hours a day only one<br />
month before the exam, it is far more effective to study 2-3 hours<br />
every day throughout the term. Find time to study whenever you<br />
think is convenient for you. It is healthier to sleep early, and rise at<br />
dawn and study.<br />
4. Regulate your habits: It may not seem relevant, and certainly not<br />
easy, but you need to limit your usage of the mobile phone and<br />
internet. Excessive use of the cell phone and the net can turn into<br />
an addiction, which will affect your concentration in studies.<br />
The Bangladesh Accountant January - March 2011 69
5. Practice English: All your materials are in<br />
English, and you have to attempt your exams in<br />
English. Since it is not our first language, you<br />
should familiarize yourself with English as much<br />
as possible. Guaranteed spoken English courses<br />
are not often helpful. In addition to study<br />
materials, you should read English newspapers,<br />
watch English news channels and movies, and<br />
read English magazines and journals. Try to<br />
improve your vocabulary.<br />
6. Prepare Notes: Instead of just going through<br />
several books, prepare your own notes on the<br />
selected topics. By doing so you would have the<br />
practice to write the answer within a specified<br />
time, and also will be able to summarise all the<br />
points into a concise format. This will save time<br />
at the revision stage.<br />
7. Read a Standard everyday: Make a habit of<br />
reading one IAS/IFRS/ISA everyday. Once you<br />
have finished reading them all, you can start<br />
again from the beginning. BY doing this, you<br />
will not have to allocate extra time to read<br />
Standards immediately before the exams.<br />
8. Prepare a plan for your studies: Just like<br />
preparing an audit plan, it is beneficial to<br />
prepare a comprehensive plan for your studies.<br />
This can be done in the following way:<br />
• Decide which papers to attempt<br />
• Speak to your supervisor at office and give notice<br />
for study leave<br />
• Study the syllabus and scope of subject<br />
• Decide on the methodology: Self study, group<br />
study, library work, class attendance etc. You<br />
may use a combination of two or more.<br />
• Collect the study materials<br />
• Collect question papers and model answers<br />
• Study regularly 3-4 hours a day<br />
• In the last 2-3 weeks before the exam, attempt a<br />
past question paper every day<br />
9. Collection of study materials:<br />
Like audit evidence, your<br />
study materials should be<br />
current, relevant and reliable.<br />
For Law and Taxation Papers,<br />
you should collect the Bare<br />
Act in addition to text books<br />
and reference books. But<br />
many students neither know<br />
or read the Bare Acts and rely<br />
on materials and reference<br />
books. The Act is an essential<br />
element from which come the<br />
interpretation and the<br />
detailing of the legal<br />
requirements. And of course<br />
disputes in such<br />
interpretations take the form<br />
of case laws. You should also<br />
have the updated IFRS and<br />
ISAs, and cultivate the habit of<br />
reading the original Standards.<br />
10. Complete your syllabus:<br />
While appearing for<br />
professional exams, you<br />
should not leave any parts of<br />
the syllabus untouched. You<br />
cannot expect to pass if you do<br />
not attempt the full 100 marks.<br />
11. Do not burden yourself with<br />
too many reference books: It<br />
is better to read one book ten<br />
times, than to have ten books,<br />
and then not read them even<br />
once. Subjects like<br />
Accounting, Auditing,<br />
Taxation and Law are<br />
standardized, and thorough<br />
study one really good book<br />
will enable you to complete<br />
the whole syllabus. Then if<br />
you have the time and energy,<br />
you can try additional<br />
references.<br />
12. Use your time effectively:<br />
When you study, do it<br />
attentively. Do not study with<br />
the TV switched on. Avoid<br />
speaking on the phone, unless<br />
it is really urgent.<br />
70<br />
January - March 2011<br />
The Bangladesh Accountant
13. Take breaks: Do not study at a stretch for too<br />
long. Take a short 5 minute break every 1-1.5<br />
hours. During this time, do not watch TV or<br />
use the computer. Rest your eyes, stretch<br />
your legs, walk around a little bit, eat or drink<br />
something. In general, relax. Studying on an<br />
empty stomach will cause a headache.<br />
14. Take mock exams: Practice writing in exam<br />
conditions as much as you can,. Attempt<br />
mock exams at home. This will help you to<br />
estimate the speed and quality of your writing.<br />
15. Preparing for the exam: Start preparing for<br />
the exam 2-3 days before the exam starts. Buy<br />
your stationery and a stationery case. Get<br />
new batteries for your calculator. Photocopy<br />
your admit card and routine. Arrange your<br />
clothes for the exam days (wear something<br />
comfortable but not too old or shabby) and<br />
consult a doctor if you have any illness like<br />
influenza, toothache etc. It is better to start<br />
medication a couple of days before, rather<br />
than on the day of the exam. Don’t learn or<br />
read anything new on the day before the day<br />
of exam. All you should do is to revise what<br />
you have already done.<br />
16. On the Exam day: Rise early, have a good<br />
breakfast, drink plenty of fluids. Do not<br />
become nervous, trying to revise too many<br />
things in the morning. If you are a religious<br />
person, say your prayers. Start from home<br />
early, allowing for traffic jams, bad weather<br />
etc. If you are using public transport, carry<br />
small notes and change with you so that you<br />
will not waste time while trying to pay your<br />
fare with large notes. Make sure you have<br />
got everything you need. Do not attempt an<br />
exam on an empty stomach.<br />
17. During the exam: When you receive the<br />
question paper, spend some time to read it.<br />
First attempt the question you know best. This<br />
will create a good impression in the mind of<br />
the examiner. Write the question number<br />
and reference clearly. Always begin the<br />
answer to a question with one or two<br />
summary sentences. Begin a new paragraph<br />
for each point or idea. Attempt all questions.<br />
Underline key points. Write legibly. Do not<br />
write too small.<br />
18. Save some time for revision and tidying up:<br />
Keep at least 10 minutes for revision. Keep<br />
another 5 minutes for tidying up<br />
your script (signature,<br />
numbering, stapling<br />
additional scripts etc.). Do<br />
not speak to others during the<br />
examination.<br />
19. Be professional in your<br />
presentation: Presentation is<br />
the method of communicating<br />
your knowledge to the<br />
examiner in the most<br />
appropriate manner.<br />
Communicating your<br />
knowledge means that what<br />
you mean and know is exactly<br />
conveyed to the examiner.<br />
There should not be any<br />
ambiguity in the answers.<br />
This is a professional exam, so<br />
your approach and<br />
presentation should match the<br />
requirements of the question.<br />
If you are required to write a<br />
letter or report, make sure it is<br />
good enough to be presented<br />
to a Partner at your office. If<br />
you are preparing a set of<br />
financial statements, make<br />
sure it is in the correct format<br />
and sequence as per the<br />
accounting and reporting<br />
standards.<br />
20. After the exam: Do not<br />
distress yourself discussing<br />
your mistakes with anyone.<br />
What has happened has<br />
happened; it cannot be<br />
changed. Discussion will only<br />
spoil your other papers. Once<br />
all your exams are over, you<br />
should make a note of all the<br />
mistakes and drawbacks for<br />
future reference. Look them<br />
up before the next exams.<br />
Wish you all the best!!<br />
While everyone has their own particular<br />
effective method of studying, a few things<br />
work for all.<br />
The Bangladesh Accountant January - March 2011 71
Students’<br />
Section<br />
1/15/<strong>ICAB</strong>-2010 28 March 2010<br />
CIRCULAR<br />
<strong>ICAB</strong> New Curriculum<br />
The Council <strong>ICAB</strong> in its meeting held on 23 March 2010 decided that from May-June 2010 onward, the<br />
following Examination Structure & Conversion Criteria would be followed by the examinees of <strong>ICAB</strong> in<br />
super-session of all previous Circulars issued in this regard.<br />
1. Examination Structure<br />
(i) The examinations structure shall comprise of 2-stages as follows:<br />
Professional Stage (PS)<br />
Advanced Stage (AS)<br />
Professional Stage examination shall again consist of 2 progressive level of examination as follows:<br />
1. Knowledge level<br />
2. Application level<br />
(ii) Professional Stage (Knowledge Level) i.e. PS (K) shall consist of 07 papers with examination duration of 1½<br />
hours each except ‘Taxation-I’ which will be of 3 hours duration, as under:<br />
Subject Duration Marks<br />
(1) Assurance 1½ hours 100<br />
(2) Accounting 1½ hours 100<br />
(3) Business and Finance 1½ hours 100<br />
(4) Management Information 1½ hours 100<br />
(5) Taxation-I 03 hours 100<br />
(6) Business and Commercial Law 1½ hours 100<br />
(7) IT Knowledge 1½ hours 100<br />
700<br />
(iii) Professional Stage (Application level) i.e. PS (A) shall consist of 07 papers with examination duration of 2½<br />
hours each as under:<br />
Subject Duration Marks<br />
(1) Audit and Assurance 2½ hours 100<br />
(2) Financial Accounting 2½ hours 100<br />
(3) Business Strategy 2½ hours 100<br />
(4) Financial Management 2½ hours 100<br />
(5) Taxation-II 2½ hours 100<br />
(6) Corporate Laws and Practices 2½ hours 100<br />
(7) IT Application 2½ hours 100<br />
700<br />
(iv) Advanced Stage (AS) shall consist of the following 04(four) papers with examination duration of 3 hours each<br />
except Case Study which will be of 4 hours duration:<br />
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Students’<br />
Section<br />
Subject Duration Marks<br />
1. Financial and Corporate Reporting 03 hours 100<br />
2. Advanced Audit and Assurance 03 hours 100<br />
3. Business Analysis 03 hours 100<br />
4. Case Study 04 hours 100<br />
400<br />
2. Pattern of Examination:<br />
Pattern of examination for each paper will be as under:<br />
(a) Professional Stage (Knowledge Level)<br />
There will be 7 (seven) separate written examinations of which 6 papers will be held and assessed in<br />
short-form (short answer) questions except Taxation-I examination which will be held and assessed in<br />
traditional system.<br />
(b) Professional Stage (Application Level)<br />
There will be 7 (seven) separate written examinations in traditional system, all having 2½ hours duration.<br />
(c) Advanced Stage (AS) Integration: There will be 03 separate written examinations in traditional system, all<br />
having 3 hours duration,<br />
and<br />
01 Case Study written examination will be of 4 hours duration.<br />
3. Recognition of Examination Results<br />
Paper by paper pass has already been allowed in all levels from the examination of November-December<br />
2009 and it will continue.<br />
4. Maximum Attempts for each paper<br />
Students will be allowed a maximum of 06 (six) continuous attempts to pass a paper under new syllabus.<br />
5. Step by step Examination<br />
Students will be given the option to sit for one or more or all the papers of each level at a session. No<br />
examination for the next level will be undertaken before the previous level has been completed in entirety.<br />
6. Frequency of Examination<br />
Examination will be held twice in a year as per existing policy of the Institute.<br />
7. Commencement of Coaching Class on New Syllabus<br />
The Coaching Classes for the students under new Syllabus have been going on since January 2010.<br />
8. Commencement of examination under New Curriculum<br />
The last Examination of PE-I syllabus was held in November-December 2009. First Examination based on<br />
new syllabus for Professional Stage-Knowledge Level will start from May-June 2010.<br />
The last Examination under PE-II syllabus will be held in May-June 2010. The First Examination based on<br />
new syllabus for Professional Stage-Application Level will start from November-December 2010.<br />
The Bangladesh Accountant January - March 2011 73
Students’<br />
Section<br />
The last Examination under PE-III syllabus will be held in November-December 2010. The First Examination<br />
based on new syllabus for Advanced Stage will start from May-June 2011.<br />
A student will be allowed to sit for the Case Study paper after completion of all other papers of Advanced<br />
Stage (AS).<br />
9. Paper by Paper Exemption with Conversion<br />
The Paper by Paper exemption with some conversion courses at the time of transition to new <strong>ICAB</strong><br />
Curriculum would be as under:<br />
Paper-by-Paper Exemptions<br />
Exemption chart<br />
PE-I (paper or half paper<br />
passed)<br />
Financial Accounting (½)<br />
Cost Accounting (½)<br />
Taxation-I<br />
Auditing (½)<br />
Business Law (½)<br />
Information Technology<br />
Student takes conversion<br />
course comprising ...<br />
Preparing Ltd company<br />
accounts<br />
... and is allowed<br />
exemption for paper<br />
PS (K) Accounting<br />
PS (K) Taxation-I<br />
PS (K) Business &<br />
Commercial Law<br />
PS (K) IT Knowledge<br />
PS (A) IT Application<br />
Student must take<br />
PS(K) Management<br />
Information<br />
PS(K) Assurance<br />
PS (K) Business &<br />
Finance<br />
PE II paper passed<br />
Advanced Financial<br />
Accounting<br />
Advanced Auditing<br />
Corporate Laws & Practices<br />
Management Accounting<br />
Financial Reporting (½)<br />
Professional Issues (½)<br />
Taxation-II<br />
Financial Management<br />
Strategic Management<br />
Student takes conversion<br />
course comprising ...<br />
Principal differences<br />
between IFRS and<br />
Bangladesh GAAP<br />
... and is allowed<br />
exemption for paper<br />
PS(A) Financial<br />
Accounting<br />
PS(K) Assurance<br />
PS(A) Audit & Assurance<br />
PS(A) Corporate Laws &<br />
Practices<br />
PS(K) Management<br />
Information<br />
Student must take<br />
PS (A) Taxation-II<br />
PS(A) Financial<br />
Management<br />
PS(A) Business Strategy<br />
PS(K) Business & Finance<br />
PS(A) Taxation-II<br />
PS(K) Business & Finance<br />
PS(A) Financial Management<br />
PS(A) Business Strategy<br />
All AS papers<br />
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Students’<br />
Section<br />
10. The students who have passed the Intermediate Examination and will not be able to pass PE-II by May-June<br />
2010 examination, will be required to appear at the following papers of Professional Stage Knowledge Level.<br />
After completion of the following papers, the students will have to pass all the papers of Professional Stage<br />
Application Level and thereafter the papers of Advanced Stage:<br />
i) Assurance 100 Marks<br />
ii) Business and Finance<br />
100 Marks<br />
iii) Management Information<br />
100 Marks<br />
Total: 300 Marks<br />
11. The Students who have passed Group “A” only of the Intermediate Examination under revised “C” Syllabus<br />
will be required to appear at the following papers of Professional Stage Knowledge Level. After completion<br />
of these papers, these students will have to pass all the papers of Professional Stage Application Level and<br />
thereafter the papers of Advanced Stage:<br />
i) Assurance 100 Marks<br />
ii) Business and Finance<br />
100 Marks<br />
iii) Management Information<br />
100 Marks<br />
iv) Taxation-I<br />
100 marks<br />
v) IT Knowledge 100 Marks<br />
Total: 500 Marks<br />
12. The students who have passed Group “B” only of the Intermediate Examination under revised “C” will be<br />
required to appear at the following papers of Professional Stage Knowledge Level. After completion of these<br />
papers these students will have to pass all the papers of Professional Stage Application Level and thereafter<br />
the papers of Advanced Stage:<br />
i) Assurance 100 Marks<br />
ii) Business and Finance<br />
100 Marks<br />
iii) Management Information<br />
100 Marks<br />
iv) IT Knowledge<br />
100 Marks<br />
Total: 400 Marks<br />
13. The students who have passed the Final Group-I Examination under “C” Syllabus or Revised “C” Syllabus<br />
will be required to appear at the following papers of Professional Stage and after completion of these papers<br />
the students will have to pass all the papers of Advanced Stage:<br />
i) PS (K) Business and Finance 100 Marks<br />
ii) PS (A) Business Strategy<br />
100 Marks<br />
iii) PS (A) Financial Management<br />
100 Marks<br />
Total: 300 Marks<br />
14. The students who passed the Final Group-I Examination under “A” or “B” Syllabus will be required to appear<br />
at the following papers of Professional Stage and after completion of these papers they will have to pass all<br />
the papers of Advanced Stage:<br />
i) PS (K) Business and Finance 100 Marks<br />
ii) PS (A) Business Strategy<br />
100 Marks<br />
iii) PS (A) Financial Management<br />
100 Marks<br />
iv) PS(A) Taxation-II<br />
100 Marks<br />
Total: 400 Marks<br />
The Bangladesh Accountant January - March 2011 75
Students’<br />
Section<br />
15. The students who passed the Final Group-II Examination under syllabus ‘A’ or ‘B’, but did not pass Final<br />
Group-I, will be required to appear at the following papers of Professional Stage and after completion of<br />
these papers they will have to pass all the papers of Advanced Stage:<br />
i) PS (K) Assurance 100 Marks<br />
ii) PS (K) Management Information 100 Marks<br />
iii) PS (A) Audit and Assurance<br />
100 Marks<br />
Total: 300 Marks<br />
16. The students who passed the Final Group-II Examination under syllabus Old-C, having passed Intermediate<br />
Examination under syllabus ‘A’ or ‘B’, but did not pass the Final Group-I, will be required to appear at the<br />
following papers of Professional Stage and after completion of these papers they will have to pass all the<br />
papers of Advanced Stage:<br />
i) PS (K) Management Information 100 Marks<br />
iii) PS (A) Taxation-II<br />
100 Marks<br />
Total: 200 Marks<br />
17. The students who passed both the Final Group-II Examination and Intermediate Examination under syllabus<br />
Old-C, but did not pass Final Group-I, will be required to appear at the following papers of Professional Stage<br />
and after completion of these papers they will have to pass all the papers of Advanced Stage:<br />
i) PS (K) Assurance 100 Marks<br />
ii) PS (K) Management Information 100 Marks<br />
iii) PS (A) Audit and Assurance<br />
100 Marks<br />
iv) PS(A) Taxation-II<br />
100 Marks<br />
Total: 400 Marks<br />
18. The students who passed the Final Group-II under syllabus ‘A’ or ‘B’ and also passed Management<br />
Accounting (being exempted from rest of the papers) of Final Group-I will be required to appear at the<br />
following papers of Professional Stage and after completion of these papers they will have to pass all the<br />
papers of Advanced Stage:<br />
i) PS (K) Assurance 100 Marks<br />
ii) PS (A) Audit and Assurance<br />
100 Marks<br />
Total: 200 Marks<br />
19. The students who passed the Final Group-II under syllabus ‘Old-C’ having passed Intermediate Examination<br />
under syllabus ‘A’ or ‘B’ and also passed Management Accounting and Taxation-II (being exempted from rest<br />
of the papers) of Final Group-I under the syllabus Revised-C, will be required to appear at all the papers of<br />
Advanced Stage.<br />
By Order of the Council<br />
N I Chowdhury FCA<br />
Secretary-<strong>ICAB</strong><br />
ALL MEMBERS OF THE INSTITUTE<br />
76<br />
January - March 2011<br />
The Bangladesh Accountant
Students’<br />
Section<br />
1/15/<strong>ICAB</strong>-2010 04 October 2010<br />
CIRCULAR<br />
In continuation of the Institute’s Circular of even number dated 28 March, 2010 regarding <strong>ICAB</strong> New<br />
Curriculum, the Council <strong>ICAB</strong> in its meeting held on 05 July & 19 July 2010 respectively resolved that the<br />
Examination Structure and Conversion Criteria as under would be followed by the examinees of <strong>ICAB</strong>:<br />
Eligibility for examination after registration:<br />
The students will be allowed to sit for the examination for the first time after 10(ten) months from the date of<br />
registration and this ten-month period will be counted from the date of registration up to the first day of May for<br />
the examination of May-June session and up to the first day of November for the examination of<br />
November-December session.<br />
Clarification of Attempts<br />
a. All the papers of Knowledge Level must be completed within 4 (four) years from the date of registration, or in<br />
06 (six) consecutive attempts counting from the first eligible attempt of the student concerned, whichever is<br />
later. Here an available opportunity to sit for any or more or all papers of Knowledge Level examination will<br />
be considered to be an attempt irrespective of whether the student concerned actually avails the opportunity<br />
or not (i.e. whether he/she actually sits for the examination or not);<br />
b. All the papers of Application Level must be completed within 3(three) years after the completion of Knowledge<br />
Level (i.e. in maximum six consecutive examinations after the completion of Knowledge Level); and<br />
c. All the papers of Advanced Stage (Integration +Case Study) must be completed within 3(three) years after the<br />
completion of Application Level (i.e. in maximum six consecutive examinations after the completion of<br />
Application Level).<br />
Old Stream Students<br />
1. PE-I Level:<br />
Students who: (i) have neither passed, nor got exemption from, any paper or half paper of PE-I level, or (ii) have<br />
either passed, or got exemption from, one or more full/half papers (but not all the papers) of PE-I level must<br />
complete:<br />
a. All the relevant papers of Knowledge Level by November-December 2012 examination (inclusive);<br />
b. All the relevant papers of Application Level within 3(three) years after the completion of Knowledge Level (i.e.<br />
in maximum six consecutive examinations after the completion of Knowledge Level); and<br />
c. All the papers of Advanced Stage including Case Study within 3(three) years after the completion of<br />
Application Level (i.e. in maximum six consecutive examinations after the completion of Application Level).<br />
2. PE-II Level:<br />
Students who have passed PE-I, but: (i) have neither passed, nor got exemption from, any paper of PE-II Level, or<br />
(ii) have either passed, or got exemption from, one or more papers (but not all the papers) of PE-II Level must<br />
complete:<br />
The Bangladesh Accountant January - March 2011 77
Students’<br />
Section<br />
a. All the relevant papers of Knowledge Level by November-December 2013 examination (inclusive);<br />
b. All the relevant papers of Application Level within 3(three) years after the completion of Knowledge Level (i.e.<br />
in maximum six consecutive examinations after the completion of Knowledge Level); and<br />
c. All the papers of Advanced Stage including Case Study within 3 (three) years after the completion of<br />
Application Level (i.e. in maximum six consecutive examinations after the completion of Application Level).<br />
3. PE-III Level:<br />
Students who have passed PE-II, but: (i) have neither passed, nor got exemption from, any paper or half paper of<br />
PE-III Level, or (ii) have either passed, or got exemption from, one or more full/half papers (but not all the papers)<br />
of PE-III Level, and (iii) thus have not qualified as CA, must complete:<br />
a. All the relevant papers of Knowledge Level and Application Level by May-June 2014 examination (inclusive); and<br />
b. All the papers of Advanced Stage including Case Study within 3(three) years after the completion of<br />
Knowledge and Application Levels (i.e. in maximum six consecutive examinations after the completion of<br />
Knowledge and Application levels).<br />
The above students will be allowed to sit for the relevant papers of both the Knowledge Level and Application<br />
Level examinations in the same session.<br />
Note: Item No.1 will come into force immediately. Item No.2 & 3 will come into force immediately after the PE-II<br />
and PE-III level examinations are discontinued respectively.<br />
Conversion Course<br />
1. PE-I: Passed, or exempted from, Financial Accounting<br />
Attend and successfully complete a conversion course on “Preparing Limited Company Accounts” (30 hours),<br />
organized by <strong>ICAB</strong> to obtain exemption from PS(K) Accounting.<br />
2. PE-II: Passed Advanced Financial Accounting<br />
Attend and successfully complete a conversion course on “Principal differences between IFRS and Bangladesh<br />
GAAP and most commonly applicable BAS/BFRS” (30 hours), organized by <strong>ICAB</strong> to obtain exemption from<br />
Financial Accounting.<br />
Note: Students will be assessed by a combination of end-of-course test, attendance records and in-course test(s)<br />
by teachers. If on assessment a student does not pass, he/she will have to pass the re-sit test to be arranged within<br />
02 months after the end-of-course test. Students who do not satisfactorily complete the course will have to sit the<br />
main paper(s) for which they were working to obtain exemption.<br />
By order of the Council-<strong>ICAB</strong><br />
N I Chowdhury FCA<br />
Secretary-<strong>ICAB</strong><br />
TO : ALL CA FIRMS<br />
ALL NOTICE BOARDS OF <strong>ICAB</strong><br />
78<br />
January - March 2011<br />
The Bangladesh Accountant
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The Bangladesh Accountant<br />
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Chartered Accountant Bhaban<br />
100 Kazi Nazrul Islam Avenue<br />
Kawran Bazar, Dhaka 1000<br />
Tel: 88 02 9117521, Fax: 88 02 8119399, Email: sas.press@icab.org.bd<br />
80<br />
January - March 2011<br />
The Bangladesh Accountant