Impact of Corporate Governance on Disclosure Transparency

in Bank Annual Reports in Bangladesh

AKM Waresul Karim
Saint Mary's College of California, USA



Monirul Alam Hossain
East West University, Bangladesh



Mohammad Nurunnabi
University of Edinburgh Business School, UK


and


Md. Mahabbat Hossain*
Bangladesh Institute of Bank Management, Bangladesh

(Karim, A.K.M.W, Hossain, M.A, Nurunnabi, M. and Hossain, M.M.
(2011), Impact of Corporate Governance on the Extent of Disclosure by
Listed Commercial Banks in Bangladesh, PROSHIKHYAN, a Journal of
Bangladesh Society for Training and Development, Vol. 19, No. 2) (July-
December)








*Corresponding Author: Faculty Member, Bangladesh Institute of Bank Management
(BIBM), Mirpur-2, Dhaka-1216, Phone: 01716373565, Email:
mahabbat_mba@yahoo.com, mahabbat@bibm.org.bd
1





Impact of Corporate Governance on Disclosure Transparency
in Bank Annual Reports in Bangladesh


AKM Waresul Karim
Associate Professor
Department of Accounting
Saint Mary's College of California
P.O. Box 4230
Moraga, CA 94575, United States
E-mail: Wares.Karim2@stmarys-ca.edu


Monirul Alam Hossain
Professor
Department of Business Administration
East West University
Mohakhali, Dhaka, Bangladesh
E-mail: monirulhossain@yahoo.com


Mohammad Nurunnabi
Research Student
University of Edinburgh Business School
University of Edinburgh
8 Buccleuch Place, Edinburgh
EH8 9LW, United Kingdom
Fax: + 44 (0) 131 668 3053
E-mail: M.Nurunnabi@sms.ed.ac.uk


and


Md. Mahabbat Hossain
Faculty Member
Bangladesh Institute of Bank Management (BIBM)
Mirpur-2, Dhaka-1216, Bangladesh
Phone: (Office) (02) 9003031-5 (Ext. 215)
(Cell) 01716 373565
E-mail: mahabbat_mba@yahoo.com or
2
Mahabbat@bibm.org.bd







Biographical notes:

AKM Waresul Karim is an Associate Professor of Accounting at Saint Mary's College
of California, USA. He received his PhD in Accounting from the University of Leeds,
UK. He has published extensively in academic and professional journals including the
International Journal of Accounting, Asia Pacific Journal of Accounting and Economics,
Research in Banking and Finance, Research in Accounting Regulation and Corporate
Governance: An International Review.

Monirul Alam Hossain is a Professor of Accounting at East West University,
Bangladesh. He received his PhD in Accounting from the Manchester Business School,
University of Manchester, UK. His current research focuses on Financial Reporting,
International Accounting Standards, Corporate Governance and Islamic Accounting &
Banking. He has published extensively in academic and professional journals and
conference proceedings.

Mohammad Nurunnabi is a research student at University of Edinburgh, UK. He has an
undergraduate degree in Accounting and Finance, an MSc degree in Accounting and
Finance and a Post Graduate Diploma in Social Science Research Methodology. He has
presented papers in British Accounting Association (BAA), Irish Accounting and Finance
Association (IAFA) and The Institute of Chartered Accountants of Scotland (ICAS).


Md. Mahabbat Hossain is a Faculty Member at Bangladesh Institute of Bank
Management (BIBM). He conducts training for the senior and mid level bankers in the
field of Accounting, Finance and Business Laws. He also conducts classes in the Masters
in Bank Management (MBA) program. He has to do research on the topic regarding
banking industry as a part of his job. He has published in academic and professional
journals. He is M. Phil. fellow in Accounting at Institute of Business Administration
(IBA), University of Rajshahi, Bangladesh.









3









Impact of Corporate Governance on Disclosure Transparency
in Bank Annual Reports in Bangladesh

Abstract


This paper reports the results of an empirical study of the role of selected corporate
governance variables on financial reporting transparency of listed banks in Bangladesh.
The three corporate governance variables examined were: the institution of an audit
committee; (ii) institutional shareholding; and (iii) auditor reputation. A comprehensive
disclosure index comprising 446 voluntary and mandatory items has been used to
measure the degree of financial reporting transparency in terms of disclosure
comprehensiveness. A multivariate analysis of annual reports of 27 banks (out of 29
listed at the time of analysis) shows that banks that have instituted audit committees by
the end of 2003 and employed Big 4 auditors produce significantly more transparent
financial reports than those who did not. The results also show that leverage is
negatively associated with disclosure transparency. Finally, institutional shareholding,
size, profitability, and complexity do not have significant impact on disclosure
transparency. Results of this study provide a greater understanding of the role of
corporate governance tools in enhancing financial reporting transparency in the
financial services sector in developing countries.



Key Words: Financial reporting transparency, corporate governance, audit
committees
4
Impact of Corporate Governance on Disclosure Transparency
in Bank Annual Reports in Bangladesh

1. Introduction

It is well known that the financial reporting practices of a country depend on several
factors, and the legal, economic, political, cultural and historical background of a country
forms the basis of the financial reporting environment. The extent of information
disclosure, its adequacy, relevance and reliability are important characteristics of
financial reporting practices prevalent in a country (Hossain, 1999). The financial
reporting practices have been changed during the last few decades. The researchers in
International accounting emphasize the importance of compliance with IASs/IFRSs as a
significant element in the quality of financial reporting practices. Abd-Elsalam and
Weetman (2003) opted that the growing acceptance of the International Accounting
Standards (IASs) by emerging capital markets has encouraged empirical investigation of
compliance with the requirements of and there is a number of studies in the area of
compliance of International Accounting Standards (IASs) to developing and/or emerging
economies (Nurunnabi, 2009; Ahmed, 2009; Hossain, 2008; Samaha and Stapleton,
2008; Dahawy and Conover, 2007; Abd-Elalam and Weetman, 2007; Hossain, Cooper,
and Islam, 2006, Islam 2006; Akhtaruddin, 2005; Ahmed, 2005a and 2005b; Hossain,
2003; Rahman and Jannah, 2003; Abd-Elalam and Weetman, 2003; Joshi and Ramadhan,
2002; Hossain and Imam, 2002; Hossain, 2001; Chamisa, 2000; Owusu-Ansah, 2000;
Susela, 1999; Rahman, 1999; Banerjee et al.; 1998; Larson and Kenny, 1998 and 1996;
Watty and Carlson, 1998; Hassan, 1998; Al-Rai and Dahmash, 1998; Mirghani, 1998;
Carlson, 1997; Marston and Robson, 1997; Islam, 1996; Ahmed and Nicholls (1995) or
Nicholls and Ahmed (1995), Wallace and Briston, 1993; Larson, 1993; Wallace, 1993;
Akter and Hoque, 1993; Hove, 1990, Shakoor, 1989; Perera, 1989 and Marston, 1986).
However, there is a shortage of existing literature which has investigated compliance
disclosure (mandatory or voluntary) in Corporate Annual Reports of Banking Sector in
the context of an emerging economy in general and in Bangladesh in particular.
5

Karim and Ahmed (2005) opted that the quality of financial reporting in developing
countries appears to be a major concern for the international financial community. In
addition, researchers like Levitt (1998) believe that the success of capital market is
directly dependent on the quality of accounting transparency and disclosure systems. Full
compliance of disclosure with proper and effective audit is very important to maintain
accountability and bring about transparency of firms, and as a result banking companies,
which collect peoples money and make a profit by investing those funds, require more
stringent audit and disclosure practices than non-financial firms (Reaz and Arun, 2006).
Karim (1995), Hossain (1999), Akhtaruddin (2005), Hossain et al. (2006) found that the
disclosure levels of Bangladeshi listed companies are generally poor which ultimately
raises the question on accounting transparency in Bangladesh. Ahmed and Karim (2005)
also found that the disclosure in the in half-yearly financial statements or quarterly
financial statements of the companies in Bangladesh, is very weak in Bangladesh.
Sundarajan and Balino (1991) found that the undesirable banking practices such as poor
risk diversification, inadequate loan evaluation and fraudulent activities has mainly
created the reasons for banking crises in some emerging economies like Argentina,
Chile, Malaysia, Philippines, Spain, Thailand etc. Greuning and Bratanovic (2003) has
opted that the modern IT based banking system have been involved with high-risk
activities such as trading in financial markets and different off-balance sheet activities
more than ever before which in turn make it very important for the banking sector to
comply with the IAS 30 in the preparation and audit of the financial reports of these
companies. In Bangladesh, there are allegations of window dressing by the banks to
hide underlying problems, weaknesses and irregularities, and there are many examples of
banks revealing different figures under the same heading in different disclosures
(Reaz and Arun, 2006). Nurunnabi (2009) commented that corruption, bureaucratic
inefficiency, political interference in administration, nepotism, misuse of power and
resources, improper and non-observance of the rule of law, non-accountable and non-
transparent administration are the common features of Bangladesh. To ensure more
transparency in accounting system and disclosure of important accounting policies of
banks and financial institutions in Bangladesh, the Central Bank (Bangladesh Bank)
6
issued a circular (BRPD) Circular No. 3/2000 dated 18/04/2000) for mandatory adoption
of IAS-30. As a result, since 2000, all banks in Bangladesh are required to use the IAS-30
in the preparation of their corporate annual reports.

This paper focuses on the measurement and analysis of the extent of voluntary disclosure
in the company annual reports of the Banking companies in Bangladesh as an example of
an emerging economy. Including the introduction, the paper is organized in seven
sections: Section two discusses the regulatory framework of banking industry in
Bangladesh. Section three reviews related prior research, section four contains the
theories and hypotheses and research methodology of the study are in section five;
Section six presents the results of the study followed by conclusion and limitations of the
study in Section seven.

2. Banking Regulatory Framework in Bangladesh

The Bangladesh Bank Order, 1972, states that:
Central bank in Bangladesh to regulate the issue of currency and the keeping of
reserves and manage the monetary and credit system in Bangladesh with a view to
stabilizing domestic monetary value; preserving the par value of the Bangladesh
Taka; promoting and maintaining a high level of production, employment and real
income in Bangladesh; and fostering growth and development of the countrys
productive resources in the best national interest (Government of Bangladesh
1972, Presidents Order No. 127, p.4).

The financial reporting practice of a country depends on legal, economic, political,
cultural reasons (Ahmed, 2006). The Bangladesh Bank Order, 1972 and the Bank
Companies Act, 1991 empower the Bangladesh Bank to regulate and supervise the
banking sector of the country (World Bank, 2003). The complex process of banking
regulation exists in Bangladesh (Sobhan and Werner, 2003) (See Appendix-1 and
Appendix- 2). The amendment of Banking Ordinance 1961 is replaced by the Banking
Companies Act, 1991. In addition, the Securities and Exchange Rule, 1987, Listing
7
requirements and adopted accounting standards are the main basis of the financial
reporting practices and disclosure made by the Banking companies in Bangladesh.
However, disclosure of information of the Banking Sector in Bangladesh has not been
increased over the last twelve years (World Bank, 2003; Ahmed, 2006). The laws of
Bangladesh (Companies Act 1994 and Securities and Exchange Rules 1987 for listed
companies) set minimum legal requirements as to the disclosure of accounting
information in corporate annual reports and is likely to be confined only to minimum
disclosure concepts. In such a situation, accounting standards, without having any legal
backing, are likely to have a very little influence on the financial reporting system in
Bangladesh. In Bangladesh, it could be seen that different companies are using different
accounting policies and procedures in the preparation and presentation of their financial
statements in their company/corporate annual reports (Asian Development Bank, 2007).
As a result of diversified use of accounting practices, a meaningful comparison of
financial position as well as performance among the companies became difficult on the
part of the users of accounting information for their decision-making purposes. Unless
the compliance is made at the national level, there is little scope of global harmonisation
of accounting standards

In Bangladesh, there are two accountancy bodies- the Institute of Chartered Accountants
of Bangladesh (ICAB) and the Institute of Cost and Management Accountants of
Bangladesh (ICMAB). The members of ICAB are entitled to attest to the validity of
accounts and to report to shareholders whether a companys financial statements comply
with statutory provisions (Nicholls and Ahmed, 1995). The Institute of Chartered
Accountants of Bangladesh (ICAB) is solely responsible for the accounting standards
adhered to in Bangladesh. In 1983, ICAB became the member of the International
Accounting Standard Committee (now IASB). Bangladeshi Accounting Standards
(BASs) include International Accounting Standards (IASs/IFRSs) adopted by the ICAB.
The Securities and Exchange Commission has by a notification dated 29
th
December
1997 requires all listed companies to abide by Accounting Standards adopted by the
ICAB and hence, accounting standards are mandatory only for the companies listed in the
Dhaka Stock Exchange (DSE) and the Chittagong Stock Exchange (CSE) (Bangladesh
8
Bank, 2006). As a result, the companies in Bangladesh are expected to comply with the
prescribed accounting standards as prescribed by the SEC. The Securities and Exchange
Commission (SEC) is the authoritative body, who has made the listed companies to adopt
sixteen Bangladesh Accounting Standards (BASs) effective from February, 2000
(Deloitte and Touche Tohmatsu, 2007). To ensure more transparency in accounting
system and disclosure of important accounting policies of banks and financial institutions
in Bangladesh, the Central Bank (Bangladesh Bank) issued a circular (BRPD) Circular
No. 3/2000 dated 18/04/2000) for mandatory adoption of IAS-30 (Bangladesh Bank,
2003-2004). The mandatory disclosure provisions under Banking Companies Act, 1991
are shown in Appendix 1 and mandatory disclosure provisions under IAS 30 (BAS 30)
are in Appendix 2.

Bangladesh also has a liberal policy towards foreign direct investment (FDI). However,
when compared to those of the India, Sri Lanka, Pakistan, Thailand and Malaysia, CG in
practice and philosophy have up till now remained relatively under-developed in
Bangladesh (Nurunnabi, 2009). The Companies Act 1994 does not contain any provision
for mandatory observance of the adopted IFRSs and ISAs in practice (Nurunnabi, 2009).
In Bangladesh, the old Banking Ordinance was replaced by the Banking Companies Act
1991. As per the section 11 of the Securities and Exchange Ordinance 1969, all listed
companies should submit the annual reports to the Stock Exchange, to the security
holders and to the SEC. As we have already discussed that the Securities and Exchange
Commission (SEC) of Bangladesh through its "gazette notification" published in
December 1997 has amended the Securities and Exchange Rules 1987, whereby all listed
entities in Bangladesh are now required to comply with the requirements of all applicable
IAS, as adopted by ICAB, in the preparation and presentation of their Financial
Statements [Rule 12(2)] and all audit practices are required to ensure compliance with
relevant ISA, as adopted by the ICAB, in the conduct of and reporting on the audit of
financial information of listed entities [Rule 12(3)] (Nurunnabi, 2009). In addition, they
found no integrity between the professional bodies and the SEC, the corruption in
corporate culture, lack of auditors professional ethics, lack of monitoring and
supervision and finally the political tension all the year basis.
9
3. Review of Prior Research

Nowadays, there are several researches have focused on the disclosure of information in
corporate annual reports of non-banking sector in the developed and developing
countries. However, a very few research can be found reflecting the disclosure of
information of the financial companies in Bangladesh. Hossain, Cooper, and Islam (2006)
argued that if the enterprises within IASB member countries do not comply with the
promulgated accounting or financial reporting standards, global harmonization will not
be achieved (Hossain, Cooper and Islam, 2006). More specifically, Islam (2006) in his
study found that the percentage of compliance rate for Bangladeshi sample companies
taking into consideration of 21 mandatory accounting Standards was only 71%. Other
empirical studies measuring the compliance of mandatory and voluntary disclosure like
Ahmed, 2009 (Bangladesh), Hossain, 2008 (India), Samaha and Stapleton, 2008 (Egypt),
Dahawy and Conover, 2007 (Egypt), Abd-Elalam and Weetman, 2007 (Egypt), Hossain,
Cooper, and Islam, 2006 (Bangladesh), Islam, 2006 (India, Pakistan, Bangladesh and Sri
Lanka), Akhtaruddin, 2005 (Bangladesh), Ahmed, 2005a (India), Ahmed, 2005b
(Bangladesh), Abd-Elalam and Weetman, 2003 (Egypt), Joshi and Ramadhan, 2002
(Bahrain), Hossain, 2001 (Bangladesh), Owusu-Ansah, 2000 (Zimbabwe), Hossain,
1999 (India, Pakistan and Bangladesh), Karim (1995), and Ahmed and Nicholls, 1994
(Bangladesh) found that the companies of a number of developing countries are not
following the mandatory accounting standards while preparing their financial reports or
statement. This section reviews research on the current situation of the financial reporting
system in Bangladesh in general and the disclosure of information (voluntary and
mandatory both) of the banking sector in the context of other countries in particular.

This part of the literature review will discuss the studies that focus the financial reporting
in Bangladesh in general. Ahmed (1982) while evaluating financial statements as a
communication device in Bangladesh found that the companies Act 1913 is inadequate to
ensure desired disclosure. Parry and Khan (1984) surveyed 74 companies including 13
banks (9 commercial banks and 4 other banks), and found that annual reports were
generally informative and complied with legal requirements, but no attempt was taken to
10
comply with IASs. Similar findings were found in another study undertaken by Parry
(1989). Toha (1986) has made an empirical study of the practical application of IASs in
Bangladesh, and found that the application of IASs in Bangladesh is very limited. Hye
(1987) examined the legal framework of the banking sector (public sector commercial
banks in Bangladesh), has noticed that there are deficiencies of disclosure annual reports
of the public sector commercial banks in Bangladesh.

Alam (1989) found serious drawbacks in the provisions of the Companies Act, 1913
1

relating to financial statements, and commented that the statutory requirements for the
disclosure of accounting information are inadequate in Bangladesh. Alam (1990)
surveyed annual reports of 62 companies in Bangladesh to evaluate their financial
reporting practices in Bangladesh which did not include any financial companies, and
found that about 10 percent of the companies in Bangladesh fulfilled the 1987
requirements of the Securities and Exchange Rules. Hye (1992) observed that in spite of
the recommendation of the ICAB, the picture depicted by published accounts is not
satisfactory at all.

Rahman and Jannah (2003) examined 46 sets of financial statements of major listed
companies, including 8 banks and 3 insurance companies. By using a checklist for
determining compliance included selected IAS requirements; their study revealed that it
is very common for the listed sample companies not to comply with the IAS
requirements. Nicholls and Ahmed (1995) assessed empirically assess the quality of
disclosure in nonfinancial companies in Bangladesh and their results reveals that the
quality of disclosure had improved significantly, particularly because of the enforcement
of the Securities and Exchange Rules and the adoption of at least six International
Accounting Standards by the Institute of Chartered Accountants of Bangladesh at that
time. They commented that one of the most important features of corporate financial
reporting was the lack of compliance with mandatory disclosure provisions. Rahman
(1999) in his study found that the compliance with voluntary disclosure requirements in
Bangladesh is much lower compared to the compliance with mandatory disclosure
requirements. It is found in his study that companies do not comply with the disclosure
11
requirements set by the regulatory bodies and Acts in Bangladesh. Using a sample of 20
Dhaka stock exchange-listed companies, with a list of 375 disclosure items they found
that the extent of mandatory and voluntary disclosure varies widely within this
environment. The findings of the study also indicate that the compliance with voluntary
disclosure requirements is much lower compared to the compliance with mandatory
disclosure requirements and that no company disclosed all mandatory information items
in its annual reports.

Hossain (1999) examined empirically the association between a number of corporate
attributes and levels of disclosure in corporate annual reports of listed non-financial
companies in three developing countries, India, Pakistan and Bangladesh. A disclosure
index (weighted and unweighted) comprising 94 items of information has been
developed, and applied to the corporate annual reports for a sample of 78 Bangladesh
companies, for the 1992-1993. It was found for the Bangladeshi companies that size
(total assets) and subsidiary of a multinational company were significantly associated
with the extent of disclosure. The study of Hossain (1999) showed mean disclosure level
of the sample companies as 29.33% in 1993. Akhtaruddin (2005) reports the results of the
extent of mandatory disclosure and the association between company-specific
characteristics and mandatory disclosure of 94 companies in Bangladesh. His results
showed that on average, the sample companies were disclosing 44% of the items of
information, which leads to the conclusion that prevailing regulations are ineffective
monitors of disclosure compliance by companies. Among the corporate attributes,
company age found not to be significant for mandatory disclosure while there is little
support for industry size as a predictor of mandatory disclosure except where size is
measured by sales. Further, profitability was also found to have no effect on disclosure.

Hossain, Cooper, and Islam (2006) in their study focuses on the extent of corporate
disclosure based on International Accounting Standards (IASs/IFRSs) adopted in an
emerging economy, Bangladesh. Using a disclosure index consisting of items of
information with a sample annual reports of 106 Bangladeshi manufacturing and trading
companies have been examined for the year ending 2001-2002. Their results showed that
12
the listed non-financial companies significantly followed the selected accounting
standards under review and did bring remarkable changes in the financial reporting
practices made by the listed companies in Bangladesh. Their study reports that the
average disclosure level is 69.05% with a minimum and maximum level of 35.85% and
94.34% respectively which is not very much encouraging. Further, the association
between the extent of disclosure and various corporate characteristics was examined
using multiple linear regression models revealed that net profit margin of Bangladeshi
companies and subsidiary of a multinational company was significantly associated with
the extent of disclosure as per sample accounting standards.

This part of the literature review will consider those empirical studies on the disclosure of
banking companies in the world with special emphasis to Bangladesh. Kahl and Belkaoui
(1981) pioneered the research on Bank Annual Report Disclosure Adequacy
Internationally. Their study investigates the overall extent of disclosure by banks located
in 18 countries. Using 1975 annual reports of the 70 banks were evaluated on the basis of
the response score assigned to 30 informational items in the disclosure index. Kahl and
Belkaoui (1981) found that the differences in disclosure adequacy exist internationally, at
least for the countries included in their sample, with considerable variability in extent,
and with US banks definitely the leaders. Further the evidence in their study supported
the positive correlation between asset size and extent of disclosure, although less strongly
than might have been expected.

Shakoor (1989) has focused on the financial reporting practices of the 6 nationalized
commercial by evaluating the performance of nationalized commercial banks in
Bangladesh during 1972 to 1984. Skakoor (1989) commented that financial reporting
system of banks needs to disclose more information to be disclosed and more methodical.
Hye (1989) in his another study opined that financial reporting is embodied in the legal
framework which out dated and suffers from serious limitations. Islam (1996) in a study
attempted to evaluate the practices relating to disclosure of accounting policies in the
financial statements of the banks working in Bangladesh on Islamic principles. He
commented that the banks should disclose confidently promulgation as to compliance
13
with the professional requirements that are followed. Islam (1997) evaluates in his study-
financial reporting in the commercial banks working in Bangladesh covering a period of
10 years based on published annual reports and relevant legal and professional reporting
requirements. The observations give testimony that annual reporting practices of the
selected banks mainly comply with the legal requirements. The existing forms including
contents of bank balance sheet and profit & loss account do not provide adequate data to
calculate important ratios and items of information evaluating the performance and risk,
solvency, liquidity and profitability of the banks. He added, as the banks are habituated to
comply with the legal requirements, the professional requirements would ultimately be
followed provided that the forms of balance-sheet and profit & loss account are re-
arranged or modified in the light of the professional requirements specially IAS-30.

Alam (1991) in his study found that the forms and contents of annual accounts prescribed
in the first schedule of the Bank Company Act. 1991 is out-dated and hence inadequate.
He identified some major inadequacies Akter and Hoque (1993) examined the disclosure
practices of the banking sector in Bangladesh. Based on their empirical evidence Akter
and Hoque (1993) commented that the disclosure and reporting in banking sector in
Bangladesh are not merely only inadequate but also biased and misleading. They
observed that in many cases financial statements of the sample banking companies are
dressed up and cosmetised, and legal framework is outdated. Chowdhury (1997)
describing the usefulness of adopting IAS 30 (Azizuddin, 2001), found that the practical
implementation of IAS 30 with disclosure of compliance have significant impact on the
banking sector over the years (Khan and Kumar, 2001). Azizuddin (2001) overviewed
that the adoption and implementation of IAS-30 which reflects greater accountability in
bank operations and greater transparency in the published financial information of
banking companies. Hossain (2004) has made an attempt to discuss shortcomings in the
published accounts and audit reports of some private commercial banks, and proposed
some recommendations for both ICAB, which regulates the independent auditors, and the
Bangladesh Bank, which regulates the clients of the auditors. In his study, the survey
findings are reported only as examples. In his study Hossain (2004) found that improving
the published financial information of banking companies results in greater transparency
14
and accountability and leads to better performance of the whole financial sector. By
successfully implementing a significant part of IAS-30 in year 2000 and 2003,
Bangladesh Bank has proven that the financial sector is keen on improving its image. In
addition to new circulars a revised and updated Bank Companies Act, 2005 would be
another milestone for the Government in general and the Bangladesh Bank is particular.

Hossain (2001) empirically investigates the extent of disclosure of 25 banks in
Bangladesh and associations between company size, profitability, and audit firm with
disclosure level. A total of 61 items of information, both voluntary and mandatory, were
included in the disclosure index, and the approach to scoring items was dichotomous. The
results showed that size and profitability of the banks are statistically significant in
determining their disclosure levels. However, the audit firm variable was not significant
at conventional levels in the model. Chipalkatti (2002) examined the association between
the nature and quality of annual report disclosures made by 17 Indian banks and market
microstructure variables. He constructed a Bank Transparency Score (BTS) consisting of
90 items of information considering the recommendations of the Basel committee and
IAS 30. The study showed no significant association between the level of disclosure and
percentage of shares held by the government, and the percentage of shares held by
foreign shareholders respectively. The results also indicated that larger banks provide
more transparent disclosure and there was no significant difference in the disclosure
scores of banks across profitability levels, but banks with lower levels of leverage did
have significantly higher disclosure scores.

Baumann and Nier (2003) addressed the issues of developing a set of disclosure
requirements by Pillar 3 of Basel II that improved market participants ability to assess a
banks value using a unique dataset on almost 600 banks in 31 countries over the period
1993-2000. These are Australia, Australia, Argentina, Belgium, Brazil, Canada, Chile,
Finland, France, Germany, Hong Kong, Indonesia, Ireland, Israel, Italy, Japan, Korea,
Malaysia, the Netherlands, Norway, Poland, Portugal, Singapore, Spain, Sweden,
Switzerland, Taiwan, Thailand, Turkey, the UK and the US. The dataset contains detailed
information about the items disclosed by banks in their annual accounts. They
15
constructed a composite disclosure index that informs about disclosure at the bank level,
and they then analysed each of the 17 sub-indices of disclosure that make up the
composite index in order to investigate which, if any, items of the banks balance sheet
disclosure are most beneficial from the point of view of the bank and most useful for
financial markets. Their findings generally confirm the hypotheses that disclosure
decreases stock volatility, increases market values, and increases the usefulness of
company accounts in predicting valuations.

Hossain (2008) investigate empirically the extent of both mandatory and voluntary
disclosure by listed banking companies in India.. A total of 184 items were selected of
which 101 and 81 were mandatory and voluntary respectively. The study revealed that in
disclosing mandatory items, the average score is 88, whilst the average score for
voluntary disclosure is 25. The findings of Hossain (2008) indicate that size, profitability,
board composition, and market discipline variables are significant, and other variables
such as age, complexity of business and asset-in-place are insignificant in explaining the
level of disclosure. Further, Indian banks are very compliant with the rules regarding
mandatory disclosure, and in contrast, they are far behind in disclosing voluntary items.
Hossain (2008) opined that his study can be a good example for other developing
countries, who are trying to have a high level of compliance in mandatory disclosure.

In recent study, Ahmed (2009) empirically examined the relationship between the
disclosure score and selected corporate attributes in a developing country like
Bangladesh. The determinants or corporate attributes he used are size of the bank {total
assets, gross revenue and number of branches}, profitability {EPS, ROA, ROI and net
profit margin (NPM)}, credit deposit ratio (CDR), Capital Adequacy Ratio (CAR), Debt
Equity Ratio (DER) and Shareholders Risk ratio]. In order to identify the determinants
of disclosure, regression analysis, multiple linear regression techniques have been used.
Using 25% of the population (12 banks) observations over a period of 5 years (2002-
2006), the extent of disclosure has been measured using the unweighted disclosure index.
The results showed that disclosure levels are associated with some company
characteristics. Only two variables that were found to be significant in determining
16
disclosure levels are return on assets and capital adequacy ratio. Ahmed and Dey (2009)
empirically measured and analyzed the performance of disclosure items in a developing
country like Bangladesh. Using 25% of the population (12 banks) observations over a period
of 5 years (2002-2006), the performance of disclosure has been measured using the
unweighted disclosure index. The study shows the top and bottom ranked banks by the size
of the UDI. The results showed that Arab Bangladesh Bank (AB Bank) appeared to have the
highest levels of disclosure and Standard bank appeared to have the lowest levels of
disclosure.

To sum up, it is very clear from the discussion of prior research is that the financial
reporting practices in Bangladesh are very poor in general and in the banking sector in
particular. Most of the companies including banks making disclosure of financial facts
follow mainly the legal requirements in preparing their financial statements. But the
forms are prescribed by the relevant laws, and mandatory IAS 30 for the preparations of
financial statements to ensure the desired disclosure. Most of the existing studies
criticized the legal requirements, but also they failed to suggest specific change or
modifications to update the forms of preparing the financial statements of banks. Finally,
time is an important factor, which along with other factors can distinguish the findings
and evidence of the present researchers from the studies of other researchers.

4. Theories and Hypotheses Development

4.1. Theories

4.1.1. Agency Theory

This theory explains why managers disclose information for the shareholders (Firth,
1979; Wallace, 1988; Cooke, 1989, 1993; Hossain et al., 1994; and Aljifri, 2008).
Managers believe that the shareholders will get their control behavior through the agent-
owners contract and the disclosure will be a means of achieving the optimal contact. The
theory assumes that the agency cost will vary with corporate attributes (e.g. size,
leverage, listing status, corporate governance compliance). For instance, the agency
17
theory predicts that the highly leverage company would disclose more information to
satisfy the debenture holders. By doing this, the cost of capital would be reduced and the
investors uncertainty would be lower. This argument would be the same for larger
company in terms of size, because if the larger company would use the higher debt
because of the tax advantage, then they will disclose more to satisfy the creditors. The
other corporate characteristics might be explained in the same argument. So, by
disclosing more, the mangers will reduce the agency cost to be trustworthy to the
shareholders, and then the agency theory would be justified in this regard.

4.1.2. Signaling Theory

Spence (1973) introduced signaling theory to explain the labor markets. This theory can
explain why some firms disclose more information than the others (Watts and
Zimmerman, 1986). The theory assumes that the disclosure of information is a reaction to
informational asymmetry in markets. Companies hold much more information than the
investors. Therefore, if the company discloses much more information would reduce the
information asymmetry (Akerlof, 1970). The managers of the company will distinguish
themselves from the others. The signal of the company would be credential in terms of
getting potential and prospective investors and creditors (Morris, 1987). For example, the
old company, the profitable company and the company using big audit firms would
disclose than the others (e.g. loss making companies, new companies etc). This argument
may be the same for internet reporting companies and interim reporting produced
companies.

In short, the accounting policy of a firm and its existence and form are determined by the
considerations of contracting efficiency (Ball, 1989, p. 3) states,). Therefore, firms with
serious agency problems will spend more resources on contracting and monitoring than
firms with lower agency costs (Maijoor, 1991, p. 127). The same logic may be applied to
signaling theory. With reference to the signaling argument, Watts and Zimmerman (1986,
p. 166) opined that the expenditure of resources on information improves the allocation
of capital, because more efficient firms receive more capital.
18
5. Research Methodology

5.1. Sample Selection

The sample covers all stock exchange listed banks operating in the country 2003. That
means our sample excludes all nationalized banks, development financial institutions
(DFIs) and foreign banks operating in Bangladesh. All available annual reports for the
year ending 31 December 2003 were collected. On 31 December 2003, there were 29
banks listed on Dhaka Stock Exchange. Annual reports for the relevant year (i.e., 2003)
were not available for 2 banks. Thus our sample resulted in 27 banks.

5.2. The Disclosure Index

5.2.1. I nformation Items I ncluded in the Disclosure I ndex

Disclosure of information in corporate annual reports is an area of research in both
developed and developing countries. There is a large accounting literature relating to
studies which have used disclosure indexes to measure the extent of disclosure made by
the companies in corporate annual reports. Disclosure indexes are based upon extensive
lists of selected items of accounting information which may be disclosed in corporate
annual reports. Disclosure indexes seek to measure the extent of disclosure by using
numerical weights on items of accounting information. This study analyses corporate
financial disclosure of the banking companies in an emerging economy, Bangladesh.

The quality of financial reporting in a country depends on the legal requirements
governing disclosure together with professional recommendations which may have a
varying degree of effectiveness depending on the influence of the professional bodies
concerned (Marston, 1986). In addition, national and international accounting standards
and stock exchange requirements may have an impact on the disclosure of information in
corporate annual reports. Companies usually disclose information in a number of ways,
such as through annual report and accounts, interim and quarterly reports, prospectus,
employee reports and announcements to the stock exchange. It may be strongly argued
19
that the most important medium of external financial disclosure is the corporate annual
report. The selection of items included in the disclosure index is a major task in the
construction of any disclosure index (Marston and Shrieves, 1991). As a result, the major
task of the present researchers is to develop a suitable disclosure index comprising items
of all mandatory information that are expected to be disclosed in corporate annual report
of the banking sector in Bangladesh. The resulting disclosure index has been used for the
evaluation of disclosure of financial companies in the three developing countries being
studied.

Marston and Shrieves (1991) are of the opinion that the usefulness of the disclosure index
as a measure of disclosure is dependent on the selection of items to be included in the
index. There is no generally accepted theory to predict users information needs and there
is an absence of an appropriate generally accepted model for the selection of the items of
information to be included in a disclosure index to judge the quality of information of a
corporate annual report. As one notable researcher observes to the extent that research
foci amongst researchers, there is no theory on item selection (Wallace, 1988; p. 354).
An item of information may be of great importance to a particular interested user group
while it may have little importance to other user groups. Most of the previous studies
have included items of information of interest to a particular group. In the present study,
items of information have been included keeping in mind their relevance to a broad range
of users. In most previous studies, the number of items selected was relatively small.
Special attention has been given to both mandatory items of information in the sample
countries. In this study the disclosure index has been developed by extensively following
IAS 30, Securities and Exchange rules 1987, Banking Companies Act 1991, listing
requirements of Dhaka Stock Exchange and Bangladesh bank BRPD Circular No. 3/2000
dated 18/04/2000. In addition, the disclosure requirements relating to mandatory
Bangladeshi Accounting Standards by the sample banking companies have been
considered and taken into account in selecting items of information where relevant, have
been included in the disclosure index. The disclosure index considered both quantitative
and qualitative items in the corporate annual reports of the sample companies. The
20
disclosure index constructed for this study included 446 items comprising both voluntary
and mandatory items.

5.2.2. Scoring of the Disclosure I ndex

There are various approaches available to develop a scoring scheme to determine the
disclosure level of corporate annual reports from the works of other researchers. In the
present study, the annual reports of the companies examined against both weighted and
unweighted indexes. In case of weighted disclosure index, weights are assigned to
individual items of information in order to discriminate between disclosures of more
important items. Some studies have used the mean scores received by each item of
information in the questionnaire as weights to individual items in the disclosure index.
For the weighted index to be used in this study the mean responses of users to individual
item in the user survey will be averaged and a mean importance score will be calculated
to provide weights to be used in the weighted disclosure index. The researchers have
decided to use the unweighted disclosure index as all mandatory disclosure of
information are equally important in the preparation of the financial statements of the
banking companies in Bangladesh. An unweighted index is the ratio of the value of the
number of items a company discloses divided by total value that it could disclose. Under
an unweighted disclosure index, all items of information in the index are considered
equally important to the average user. The unique advantage of using an unweighted
index is that it permits an analysis independent of the perception of a particular user
group (Chow and Wong-Boren, 1987; p.537). If various users of accounting information
are asked to weigh the importance of different items of information in the disclosure
index, they may attach different weights to the same items of information. Despite the
attractions of reflecting users perceptions, the perceptions of different groups of users
vary due to subjective judgement and interests, subjective judgements may average each
other out (Cooke, 1992; p.233) or neutralise the relative importance of each disclosure
item to all members of a user group (Wallace, 1987; p.355). The choice of an unweighted
index over a weighted one does not produce substantially different results (e.g. Chow and
21
Wong-Boren, 1987; p.537) and there are researchers who favoured the use of unweighted
indexes (e.g. Spero, 1979; p.57 and Rubbins and Austin, 1986).

Under unweighted disclosure indexes (UDI), while measuring the level and extent of
disclosure, the disclosure will be considered as a dichotomous variable. Here, the only
consideration is that whether a company discloses an item of information in its corporate
annual report it will be awarded 1 and if not, it will be awarded 0. In the disclosure
model which will be used and followed in this study, the total disclosure score for a
banking company taken to be additive. The disclosure model for the unweighted
disclosure thus measures the total disclosure (TD) score for a company as follows:
TD=
di
i
n
=

1

Where, d = 1 if the item di is disclosed
0 if the item di is not disclosed
n = number of items

Finally, the selected banking company attributes such as size (total assets), profitability
(return on equity, audit firms international affiliations, institutional shareholding,
whether the bank has an audit committee have been extracted from corresponding annual
reports. A multivariate analysis was carried out to examine the association between the
extent of disclosure and 3 corporate governance variables and four control variables.

5.3 Hypothesis of the Study

The primary aim of the study, as mentioned earlier, is to examine the role of corporate
governance financial reporting transparency of banks in Bangladesh. The expected role
is examined by testing the following hypothesis:
H0: There is no significant association between a number of corporate governance
attributes (viz. audit committee, institutional ownership and Big 4 affiliation of audit
firms) and the extent of disclosure in published annual reports.

The multiple linear regression technique is used to test the hypothesis.

22
5.4 The Dependent and Explanatory Variables

5.4.1 Dependent Variable
Disclosure scores are calculated for each bank and used as the dependent variables in the
regression. The overall disclosure index (ODI) for each bank is obtained by using a
dichotomous procedure whereby the total score received by a bank is equal to the number
of items disclosed in its annual report divided by the total number of items in the
disclosure index. The normality of the distribution of the index scores was tested using
the normality plot and histogram and both were found to be normally distributed.

5.4.2 Explanatory Variables:

Three corporate governance variables are used as test variables. They are: (i) the
institution of an audit committee; (ii) institutional shareholding; and (iii) auditor
reputation. Besides, four control variables wee used. They are: (i) bank size measured
by natural log of tital assets; (ii) profitability measured by return on equity (ROE); (iii)
complexity measured by loans and advances as a proportion of total assets; and (iv)
leverage measured as debt to book value (market value for negative equity firms) of
equity. The procedure for operationalising the variables in the regression analysis and the
rationale for expecting them to explain cross-sectional disclosure variability are outlined
in the following paragraphs.

Audit Committee: Audit committees are increasingly being seen as one of the more
effective corporate governance levers used in both the Anglo-Saxon and Japan-German
models of corporate governance. Since Cadbury (1992) Committee recommendations, all
the so-called corporate governance best practice codes recommend institution of audit
committees in order to improve monitoring quality of both internal and external audits.
Recent corporate governance pronouncements emphasize not just having audit
committees but how independent the said committee is? That means in major
industrialized economies it is no longer sufficient to have an audit committee per se,
increased attention is being paid on the composition of audit committees. The question
23
being asked more frequently in recent times focuses on the proportion of audit committee
members are represented by independent directors. Institution of audit committees has
been made mandatory for banks in Bangladesh in 2003 via Bangladesh Bnaks circular
no. 12 and 16 issued on June 10, 2003 and July 24, 2003, respectively. As of 31
December 2003, 16 of the 27 banks in our sample have instituted audit committees. We
expect these 16 banks to demonstrate greater transparency in their financial reporting.
We expect so because either these are banks that are more eager to embrace corporate
governance best practice and hence are more likely to be more transparent or the audit
committee would act as a positive influence on their disclosure behavior. A dummy
variable, labelled AUDCOM, is used whereby a value of 1 is awarded to firms having
audit committees and zero otherwise.

Institutional Shareholding: Institutional shareholding is considered an important
corporate governance mechanism whereby institutional shareholders exert their influence
and expertise in providing leadership in the boardroom. They also act as a safety valve in
preventing management or other dominant shareholders to engage in value destructive
behavior. Institutional investors have incentives to care about the quality of financial
reporting including its comprehensiveness. The presence of one or more significant
institutional shareholder(s) is therefore expected to enhance the level of disclosure in firm
financial statements. We use the actual percentage of institutional shareholding to
capture this variable. The variable is labeled INSTTSHLD.

Auditor Reputation: The size of a firms audit firm and/or its international link is
believed to influence both the quality and the quantity of information disclosed by the
firm. It is expected that in countries where the Big-Four audit firms operate, financial
statements certified by any Big-Four firm carry more credibility than those audited by
non-Big-Four firms. DeAngelo (1981) argued that larger audit firms invest more to
maintain the reputation of their audit quality. Haque (1984) suggested that in
Bangladesh, only large audit firms enjoy the privilege of choosing the clients and the
audit job. Many disclosure studies examined the potential association between the
auditor size and extent of disclosure. Among them Singhvi and Desai (1971) and Ahmed
24
and Nicholls (1994) found positive association between audit firm size and the extent of
disclosure.

In Bangladesh, none of the Big-Four audit firms have a named branch. However, some
of the larger Bangladeshi firms claim affiliations with the international Big-Four. These
few big firms are responsible for auditing most of the big companies in the private sector
and almost all the multinational companies operating in Bangladesh. In the present study,
the international link of audit firms were considered for use as explanatory variables.
Audit firms having an affiliation with an international Big-Four were distinguished from
those that do not. In order to see if the auditor's international link had any impact on
disclosure comprehensiveness, this was considered for being used as an explanatory
variable labelled AUDITOR. A dichotomous procedure was used to operationalise the
variable awarding one if the banks audit firm was big and zero if it was not.

Size: The size of the firm has been a major variable in most studies examining disclosure
variability. With the exception of Spero (1979) and Stanga (1976), all the studies found
that corporate size significantly explains disclosure levels and variability.

The size of a firm can be measured in a number of different ways and there is no
overriding reason to prefer one to the other(s) (Cooke, 1991). Several measures of size
were available in this study including: total deposits, total loans and advances, total
assets, total capital, shareholders equity, and the market value of the bank. After a
primary examination based on the correlation between the dependent variable and the
available size variables, we decided to drop all but total assets as our size measure. The
chosen size variable was not normally distributed as expected. This problem was averted
by computing the natural log of the size variable which produced normality of the
distributions. The log of total assets (LOGASSETS) is used in the study as the size
variable.

Profitability: Bank profitability affects disclosure in many ways. Studies on the
understandability of financial statement messages found that narrative disclosures in
25
corporate annual reports are deliberately made complex to communicate bad news and
made more lucid and easily understandable to communicate good news (Adelberg, 1979).
Banks are likely to feel more comfortable when disclosing favourable rather than
unfavourable information, because one of the objectives of information disclosure is to
increase share prices.

Profitability was used as an explanatory variable by Cerf (1961), Singhvi (1967), Singhvi
and Desai (1971), Belkaoui and Kahl (1978), Spero (1979) and Wallace (1987). Cerf
(1961), Singhvi (1967), Singhvi and Desai (1971) found positive association between
profitability and disclosure while Belkaoui and Kahl (1978) found a negative association
between them. A number of profitability measures were used by previous researchers.
They include net profit to sales, earnings growth, dividend growth and dividend stability
(Cerf, 1961), rate of return and earnings margin (Singhvi, 1967 and Singhvi and Desai,
1971), and return on assets (Belkaoui and Kahl, 1978). In this study, a number of
profitability measures were computed from the annual report data, but the return on
equity was selected for the analysis. The variable was labeled ROE.

Complexity: Complexity is likely to have a bearing on disclosure comprehensiveness.
As operations become more and more complex, it usually warrants more disclosure.
Several measures of complexity has been used in the literature. They include diversity of
product and customers, number of branches, number of subsidiaries or associates, number
of overseas subsidiaries, number of industries in which the client operates, the absolute
amount of inventory and receivables, and the proportion of assets in inventory and
receivables. We use the proportion of loans and advances to total assets as our measure
of complexity. The use of a relative measure of audit complexity meant that the size
effect was not affected by the inclusion of the variable. The variable was labelled
COMPLEX.

Leverage: The degree to which a firm's financial structure is geared has been used in a
few disclosure studies to examine if there exists any association between gearing ratio
and disclosure levels. Chow and Wong-Boren (1987) and Ahmed and Nicholls (1994)
26
found no significant association between leverage ratio and the extent of voluntary
disclosure in Mexico and Bangladesh respectively while Belkaoui and Kahl (1978)
observed a significant negative relationship between the two variables. On the other
hand, Robbins and Austin (1986) found a significant positive association between debt
and municipal disclosure. The debt-equity ratio is used in the present study as the
measure of leverage. For banks with negative equity, their book value of equity was
replaced by market value of equity before applying the leverage formula. The variable is
labelled LEVERAGE.

6. Test of Hypothesis

The descriptive statistics for the explanatory and dependent variables are presented in
Table 2. The descriptive statistics shows that the mean disclosure level of the sample
banks is 39.01 percent, which is equivalent to 174 items (out of 446 items examined).
The minimum number of items disclosed by a sample bank was 110 items while the
maximum number of items disclosed was 232. Fifty-nine percent, (i.e., 16 out of 27) of
the banks in our sample had an audit committee while 44 percent (i.e., 12) had a Big 4
auditor. Of the 16 banks that had audit committees, 7 had Big 4 auditors. Average
institutional shareholding was 13.31 percent with a minimum of zero and a maximum of
70 percent. Average total assets of the sample banks was Tk21,896 million (US$377
million) with a minimum and maximum of Tk301 million and Tk81,705 million
respectively. Average ROE was 14.43 percent while average complexity measure was
59.47 percent. Average leverage was 2.748 with a minimum of 0.40 and a maximum of
8.56.

A correlation matrix of all the above explanatory variables along with the dependent
variables was constructed which is shown in Table 3.

27
6.1 The multivariate model

The model developed in this paper is as follows:

ODI = o + |
1
Auditcomm + |
2
Insttholding + |
3
Big4 +|
4
Complex + |
5

Leverage+ |
6
ROE + |
7
Assets +

The above model, developed in this paper is based on 27 banks. A summary of the
regression output is provided in Table 4. The results show that audit committee, auditor
reputation, and leverage have significant bearing on the extent of disclosure made by
banks in Bangladesh. Banks that have constituted audit committees by 2003 disclose
significantly more items of information than those that have not. A comparison of the
average number of items disclosed by the two categories of banks shows that banks with
audit committees disclose 188.37 items on average while those without audit committees
disclose only 153.09 items on average. A non-parametric t-test also shows the above
difference to be statistically significant (t value of 3.541). The results also show that
banks who have employed Big 4 affiliated audit firms disclose significantly more
information than those who do not. This finding is particularly important given the fact
that only 12 of our sample banks have a Big 4 affiliated auditor of which only 7 have
audit committees. Therefore, the influence of a Big 4 affiliated auditor does not
necessarily overlap with that of an audit committee. The average number of items
disclosed by Big 4 affiliated banks in our sample is 181.17 while the average for non-Big
4 affiliated banks is only 168.27. The third variable that emerged significant in
explaining cross-sectional variations in disclosure levels is leverage. As expected,
leverage has an inverse relationship with disclosure levels. It shows that banks that have
higher levels of borrowing from other financial institutions and the central bank are more
conservative in disclosing information.

Our results also show that institutional shareholding, complexity, profitability, and size
do not have significant influence on disclosure levels. Although insignificant, each of
these variables have expected positive signs of their beta co-efficients. The results may
28
be driven by the highly regulated nature of the banking industry, relative uniformity in
disclosure and the relatively large size of each of these banks that make them
economically visible. As a result, their relative size, profitability, leverage, and
complexity do not appear to make significant differences in their disclosure levels.

Results reported in Table 4 provide evidence of the important role corporate governance
in general and audit committees and Big 4 affiliated auditors are playing in enhancing
financial reporting transparency in the banking sector in Bangladesh.

7. Conclusion and Limitations

This paper reports the results of a multiple linear regression analysis of the role of 3
corporate governance variables audit committee, auditor reputation, and institutional
ownership on the extent of disclosure in bank annual reports. The extent of disclosure
was measured using a comprehensive disclosure index comprising 446 items including
both mandatory and voluntary items.

The results show that disclosure levels are associated with two corporate governance
attributes whether the bank has instituted an audit committee and the reputation of its
audit firm. Disclosure levels are also associated with the level of financial leverage
employed by the bank. The results also show that institutional ownership does not have a
significant influence on financial reporting transparency of banks. However, it has a
positive, albeit insignificant, influence. It is interesting to see that size, profitability and
complexity do not have significant influence on bank disclosure either. Again, each of
these variables has the expected positive sign.

Findings of this study have important policy implications. First, audit committee
constitution was not mandatory until 2003. By the end of the year only 16 banks have
constituted audit committees. Our finding of a positive association between audit
committees and disclosure levels is encouraging if audit committees are pushing for
greater transparency. It could also be interpreted as banks that are more transparent are
29
swift in constituting audit committees. The significance of the Big 4 variable is
significant in the backdrop of a lack of Big 4 dominance in the countrys banking sector.
The share of the Big 4 affiliated firms in the banking sector is only 44 percent! By
international standards, this is extremely low given the size of banks as economic
institutions compared with average firms in other industries. The evidence of a positive
role played by Big 4 auditors can be expected to be helpful in enhancing disclosure
comprehensiveness in the banking sector in Bangladesh.

The study has several limitations: First, although it covered all but 2 banks operating in
Bangladesh in 2003, the size of the sample remains small only 27. This poses a threat
to the validity of our findings as a bigger sample size is warranted for running multiple
linear regressions. Second, the index used to capture disclosure levels included both
voluntary and mandatory items. Our Overall Disclosure Index (ODI) measure does not
distinguish between the two. It is therefore possible to have a trade-off between the two
groups of items voluntary and mandatory making it difficult to interpret disclosure
levels with greater mandatory compliance or voluntary disclosure or both. Finally, the
dichotomous scoring procedure employed in the study, while consistent with the tradition
of most disclosure studies, has some fundamental flaws such as its failure to distinguish
quality of disclosure from its quantity and its inability to reward or penalize firms for the
depth or breadth of such disclosure.

Notes:

1 In Bangladesh, the Companies Act 1913 that was enacted by the British
legislators in the sub-continent has been repealed by the enactment of the
Companies Act 1994.
30
References

Ahmed, A. A (2009), Corporate Attributes and the Extent of Disclosure: A Study of
Banking Companies in Bangladesh, Paper presented at the 5th International
Management Accounting Conference, Universiti Kebangsaan Malaysia, October
19-21 October 2009, Kuala Lampur, Malaysia.
Ahmed, A. A. and Dey, M. M. (2009), An Empirical Analysis of Performance
Measurement of the Disclosure in Financial Reporting: A Study of Banking
Sector in Bangladesh, paper presented at the 2nd COMSATS International
Business Research Conference, COMSATS Institute if Information Technology, 14
November 2009, Lahore, Pakistan.
Ahmed, H. (2005a), Corporate Voluntary Reporting Practices in India, The Cost and
Management, Vol. XXXIII, No. 5 (September- October), pp.73-79.
Ahmed, H. (2005b), Firms Trading Category and the Extent of Disclosure in
Bangladesh, The Cost and Management, Vol. XXXIII, No. 4, pp. 5-21.
Ahmed, J. (2006), Roadmap for accountancy profession in Bangladesh. The Financial
Express, 19 February. Available at:
http://www.iasplus.com/asia/0604bdroadmap.pdf
Ahmed, K., and Nicholls, D. (1994), "The Impact of Non-financial Company
Characteristics on Mandatory Compliance in Developing Countries: The Case of
Bangladesh", The International Journal of Accounting, Vol. 29, No. 1, pp. 60-77.
Akerlof, G.A. (1970), The market for lemons: quality uncertainty and the market
mechanism, Quarterly Journal of Economics, Vol. 84, August, pp. 488-501.
Akhtaruddin, M. (2005), "Corporate Mandatory Disclosure Practices in Bangladesh",
International Journal of Accounting, Vol. 40, pp. 399-422.
Akter, M. and Hoque, M. (1993), Disclosure Practices in Bangladesh: A Case Study of
the Banking Sector, Dhaka University Journal of Business Studies, Vol. 14, No.
2, pp. 29-42.
Alam , S.A.K.M. (1990), Changes in Securities Regulations: One Step Forward or One
Step Backward, The Cost and Management, July-August, pp. 20-22.
Alam, S.A.K.M. (1989), Corporate Financial Reporting in SAFA Countries- Bangladesh
Context, The Accountant, Vol.XII, No. 2, April-June, pp. 14-22.
Alam S.A.K.M (1990), "Disclosure Practices in Bangladesh: A Case Study of the
Banking Sector", Journal of Business Studies, Vol. 14, No. 2, pp. 21-28
Al-Rai, Z. and Dahmash, N. (1998), The effects of applying international accounting
and auditing standards to the accounting profession in Jordan, Advances in
International Accounting, Supplement 1, pp. 179-193.
Aljifri, K. (2008), Annual report disclosure in a developing country: The case of the
UAE, Advances in Accounting, incorporating Advances in International
Accounting, Vol. 24, pp. 93100.
31
Asian Development Bank. (2007). Asian Development Outlook 2007: Bangladesh.
Available at: http://www.adb.org/Documents/Books/ADO/2007/update/BAN.pdf
Azizuddin, A.B.M. (2001), IAS-30: Disclosure in the Financial Statements of Banks and
Similar Financial Institutions Its Adoption and Implementation, The Bangladesh
Accountant, October-December, pp. 29-41.
Banerjee, B. Martens, S. and McEnroe, J. (1998), Accounting standard-setting: a
comparison of India and the United States, Advances in International
Accounting, Supplement 1, pp. 239-251.
Brealey, R. and Myers, S. (1981), Principles of Corporate Finance, McGraw Hill, New
York.
Carlson, P. (1997), Advancing the harmonisation of international accounting standards:
exploring an alternative path, The International Journal of Accounting, Vol. 32,
No. 3, pp. 357-378.
Chamisa, E. (2000), The relevance and observance of the IASC standards in developing
countries and the particular case of Zimbabwe, The International Journal of
Accounting, Vol. 35, No. 2, pp. 267-286.
Chipalkatti, N. (2002), "Market Microstructure Effects of the Transparency of Indian
Banks", Working Paper, No 17, National Stock Exchange, India
Chowdhury, A. (1997), A Comparative Evaluation and Rationale for Adoption of IAS
30 in Bangladesh, The Bangladesh Accountant, July-September, pp.129-141.
Cooke, T.E. (1989), Disclosure in the corporate annual reports of Swedish companies,
Accounting and Business Research, Vol. 19 No. 74, pp. 113-124.
Cooke, T.E. (1993), Disclosure in Japanese Corporate Annual Reports, Journal of
Business Finance and Accounting, Vol. 20 No. 4, pp. 521-535.
Deloitte and Touche Tohmatsu. (2007). IAS Plus Bangladesh. Available at:
http://www.iasplus.com/country/banglade.htm
Firth, M. (1979), The impact of size, stock market listing, and auditors on voluntary
disclosure in corporate annual reports, Accounting and Business Research, Vol.
9, Autumn, pp. 273-280.
Hossain, I. (2004), Disclosure by Banking Companies in Annual Financial Statements,
CPE Seminar Paper, The Institute of Chartered Accountants of Bangladesh, 27
April 2004.
Hossain, M. (2008), "The Extent of Disclosure in Annual Reports of Banking
Companies: The Case of India", European Journal of Scientific Research, Vol.23
No.4, pp.659-680.
Hossain, M.A, Cooper, K, and Islam, K.S (2006), Compliance with IASs: The Case of
Bangladesh, paper presented at the Seventh Asian Accounting Association
Conference, 17th-19th September, Sydney, Australia.
32
Hossain, M.A. (2003). Enforcement and Compliance of Accounting Standards: A
Proposal for Bangladesh, The Chartered Secretariat, Vol. IV, Issue. 13, January
- March. pp. 15-19
Hossain, M. (2001), The Disclosure of Information in the Annual Reports of Financial
Companies in Developing Countries: the Case of Bangladesh, Unpublished
MPhil Thesis, The University of Manchester, UK.
Hossain, M.A. (1999), Disclosure of Financial Information in Developing Countries: A
Comparative Study of Non-financial Companies in India, Pakistan and
Bangladesh, Unpublished PhD Dissertation, The University of Manchester.
Hossain, M., Tan, L.M. and Adams, M. (1994), Voluntary disclosure in an emerging
capital market: Some empirical evidence from companies listed on the Kuala
Lumpur stock exchange, International Journal of Accounting, Vol. 29 No. 4, pp.
334351.
Hove, M. (1990), The Anglo-American influence on international accounting standards:
The case of the disclosure standards of the International Accounting Standards
Committee, Research in Third World Accounting, Vol. 1, pp. 55-66.
Hye, M.A. (1992), International Accounting Standards and the Accounting Institutes of
Bangladesh, the Cost and Management, the Institute of Cost and Management
Accountants of Bangladesh, Vol. XX, No.3, July-August, pp. 28-32.
Islam, M (2006), Compliance with Disclosure Requirements by Four SAARC
Countries-Bangladesh, India, Pakistan and Sri Lanka, Journal of American
Academy of Business, Cambridge, Vol. 10 No. 1, pp. 348-356.
Hye, M.A. (1989), "Compliance of IAS 30 by Bank Companies of Bangladesh", The Cost
and Management, May- June, pp. 38-46.
Joshi, P.L. and Ramadhan, S. (2002), The adoption of international accounting standards
by small and closely held companies: evidence from Bahrain, International
Journal of Accounting, Vol. 37, No. 4, pp. 429-440.
Kahl, A. and Belkaoui A. (1981), Bank Annual Report Disclosure Adequacy
Internationally. Accounting and Business Research, Summer, pp. 189-196.
Karim, A.K.M.W. (1995), Provision of Corporate Financial Information in Bangladesh,
Unpublished PhD Thesis, The University of Leeds, UK.
Karim, A.K.M.W. and Ahmed, J.U. (2005), Determinants of IAS disclosure compliance
in emerging economies: Evidence from exchange-listed companies in
Bangladesh, Working Paper Series, Working Paper no. 21, Victoria University
of Wellington, New Zealand.
Kester, W.C. (1984), Today's Options for Tomorrow's Growth, Harvard Business
Review, No. 62, March-April, pp.153-160.
Khan and Kumar (2001), "IAS-30 and its Application in the Banking Sector in
Bangladesh", Bank Parikrama, Volume XXVI, No.1, March 2001, p-5-21.
33
Larson, R. (1993), International accounting standards and economic growth: an
empirical investigation of their relationship in Africa, Research in Third World
Accounting, Vol. 2, pp. 27-43.
Larson, R. and Kenny, S. (1996), Accounting standard-setting strategies and theories of
economic development: implications for the adoption of international accounting
standards, Advances in International Accounting, Vol. 9, pp. 1-20.
Larson, R. and Kenny, S. (1998), Developing countries involvement in the IASCs
standard-setting process, Advances in International Accounting, Supplement 1,
pp. 17-41.
Maijoor, S.J. (1991), The Economics of Accounting Regulation, Maastricht.
Marston, C.L. and Robson, P. (1997), Financial Reporting in India: Changes in
Disclosure over the Period 1982 to 1990, Asia Pacific Journal of Accounting,
June, pp. 109-139
Marston, C.L. (1986), Financial Reporting Practices in India, Crom Helm, London.
Mirghani, M. (1998), The development of accounting standards in the Kingdom of
Saudi Arabia: an international accounting standards perspective, Advances in
International Accounting, Supplement 1, pp. 195-206.
Morris, R.D. (1987), Signaling, agency theory and accounting policy choice,
Accounting and Business Research, Vol. 18, Winter, pp. 47-56.
Nicholls, D. and Ahmed, K. (1995), Disclosure Quality In Corporate Annual Reports of
Non-Financial Companies in Bangladesh, Research in Accounting in Emerging
Economies, Vol. 3, pp. 149-171.
Nurunnabi, M. (2009), The perceived need for and impediments in achieving accounting
transparency in developing countries: A field investigation, Paper presented at
the BAA (British Accounting Association) Annual Conference, University of
Dundee, Scotland, UK, 21-23 April, Available at:
http://www.baa.group.shef.ac.uk/events/conference/BAA%20Conference%20200
9%20-%20detailed%20schedule.pdf)
Owusu-Ansah, S. (2000), Noncompliance with corporate annual report disclosure
requirements in Zimbabwe, Research in Accounting in Emerging Economies,
Vol. 4, pp. 289-305.
Parry, M.J. and Khan, F.A. (1984), A Survey of Published Accounts in Bangladesh,
Institute of Chartered Accountants of Bangladesh, June.
Parry, M.J. (1989), The Role of Accounting in the Economic Development of
Bangladesh, PhD Dissertation, University of Wales, UK.
Perera, M. (1989), Accounting in developing countries: A case for localised
uniformity, The British Accounting Review, Vol. 21, No. 2, pp. 141-158.
Rahman, M.Z. and Zannah, S. (2003), Reports on the Observance of Standards and
Codes (ROSC) Bangladesh, Accounting and Auditing, (World Bank and IMF,
May 16).
34
Rahman, M.M. (1999), The Extent of Mandatory and Voluntary Financial Disclosure by
Listed Companies in Bangladesh: An Empirical Study, Dhaka University
Journal of Business Studies, Vol. 20, No. 1, pp.189-208.
Reaz, M. and Arun, T. (2006), Corporate Governance in Developing Economies:
Perspective from the Link between Board Ownership and Financial
Performance, Corporate Governance: An International Review, Vol. 15, No. 6.
Samaha, K. and Stapleton, P. (2008), Compliance with International Accounting
Standards in a National Context: Some Empirical evidence from the Cairo and
Alexandria Stock Exchanges, Afro-Asian Journal of Finance and Accounting,
Vol. 1, No. 1, pp. 22-41.
Saha and Rahman (2000) "Financial Reporting Practices in Banks and Financial
Institutions: Implementing The New Formats of Financial Statements in
Compliance With IAS-30", The Bangladesh Accountant, July-September.
Samuels, J.M. and Oliga, J.C. (1982), Accounting Standards in Developing Countries,
International Journal of Accounting Education and Research, Vol. 18, No. 1.
Sundarajan, V. and Balino, T. (1991), Issues in Recent Banking Crises, in Sundarajan,
V. and Balino, T. (Eds), 'Banking Crises: Cases and Issues', Washington DC.
Sobhan, F. and Werner, W. (2003), A Comparative Analysis of Corporate Governance
in South Asia: Charting a Roadmap for Bangladesh. Bangladesh Enterprise
Institute, Dhaka, Bangladesh.
Spence, M. (1973), Job market signaling, Quarterly Journal of Economics, Vol. 87,
August, pp. 2930.
Susela, S. (1999), Interests and accounting standard setting in Malaysia, Accounting,
Auditing and Accountability Journal, Vol. 12, No. 3, pp. 358-387.
Toha, M. (1986), IASs in the Context of Bangladesh, a paper presented in the Third
SAFA Conference, the Institute of Chartered Accountants of Bangladesh (ICAB)
and the Institute of Cost and Management Accountants of Bangladesh (ICMAB),
Dhaka, Bangladesh.
Tyrrall, D., Woodward, D. and Rakhimbekova, A. (2007), The relevance of
International Financial Reporting Standards to a developing country: Evidence
from Kazakhstan, The International Journal of Accounting, Vol. 42, No. 1.
Wallace, R.S.O. and Briston, R. (1993), Improving the accounting infrastructure in
developing countries, Research in Third World Accounting, Vol. 2, pp. 201-224.
Wallace, R.S.O. (1988), Corporate financial reporting in Nigeria, Accounting and
Business Research, Vol. 18, Autumn, pp. 352-362.
Watts, R.L. and Zimmerman, J.L. (1986), Positive Accounting Theory, Englewood Cliffs,
New Jersey: Prentice-Hall.
World Bank. (2003), Bangladesh: Report on the Observance of Codes and Standards:
Accounting and Auditing. Available at:
http://www.worldbank.org/ifa/rosc_aa_bgd.pdf
35
Table 1: Descriptive Statistics of the Dependent and Explanatory Variables
Variable
N Minimum Maximum Mean
Standard
Deviation
Overall disclosure index 27 .25 .52 .3901 .07059
Audit committee 27 0 1 .59 .501
institutions' share 27 0 70 13.31 15.781
Big four and other firms 27 0 1 .44 .506
Natural log of total assets 27 2.48 4.91 4.1060 .56837
Return on equity 27 -30.39 31.03 14.4285 11.76349
Audit complexity 27 .20 .86 .5947 .14874
Leverage 27 0.40 8.56 2.748 2.0116

Table 2: Independent Variables, Proxy and Expected Sign

Independent Variable Proxy Expected
Sign
Test Variables:
AUDCOM Corporate Governance Link

If the companies have Audit
committee =1 otherwise 0
+
INSTTSHLD Institutional shareholding Percentage of shares held by
institutional investors
+
BIG4 Auditor Reputation Whether the company is audited
by a Big 4 affiliated audit firm
+
Control variables:
LNASSETS Size

Natural log of total assets +
ROE Profitability Return on Equity =
Net Profit/Total Shareholders
Equity
+


COMPLEX Audit complexity Proportion of loans and advances
to total assets
+
LVG Leverage Debt-to-equity ratio -
36
Table 3: Correlation Matrix

Overall disclosure
index
Overall
disclosure
index
Audit
committee
institutions'
share
Big four
and other
firms
Natural log
of total
assets
Return on
equity
Audit
complexity
Audit committee .561
**

institutions' share .006 -.232
Big four and other
firms
.207 -.017 -.004
Natural log of total
assets
.376 .412
*
-.220 .009
Return on equity .170 .161 .154 .224 -.266
Audit complexity .485
*
.476
*
-.242 -.128 .627
**
-.069
Leverage -.215 -.028 .215 .343 -.263 .505** -.354

Table 4: Summary of the regression output for the whole sample

ODI = o + |
1
Auditcomm + |
2
Insttholding + |
3
Big4 +|
4
Complex + |
5

Leverage+ |
6
ROE + |
7
Assets +

Dependent Variable Coefficients t-statistic Sig.
(Constant) .226 2.406 .026
Audit committee .063 2.412 .026
institutions' share .001 1.386 .182
Big four and other firms .045 1.958 .065
Natural log of total assets .008 .315 .756
Return on equity .001 1.106 .282
Audit complexity .097 .927 .365
Leverage -.009 -1.921 .070
F Statistic 3.492
Model Significance 0.014
Adjusted R
2
0.402
N 27



37
Appendix-1: Relevant Regulation for Banking Industry in Bangladesh


Bangladesh Bank Order No. 127, 1972
Bangladesh Bank (Amendment) Act, 2003
Banking Companies Act No. 14, 1991
Bank Company (Amendment) Act No. 13, 1993
Banking Companies (Amendment) Act No. 25, 1995
Banking Companies (Amendment) Act, 2003
Companies Act No. 18, 1994
Money Laundering Prevention Act No. 7, 2002
Bangladesh Bank Framework for Internal Control Systems in Banking
Organizations
Bangladesh Bank Guidelines for Merger/Amalgamation of
Banks/Financial Institutions
Bangladesh Bank Prudential Regulations for Banks, 2007
Bangladesh Bank Guidance Notes on Prevention of Money Laundering
Bank Regulation and Policy Division Circular No. 5, 2006
Bank Regulation and Policy Division Circular No. 14, 2007


Appendix-2: Relevant Institutions for issuing regulation and monitoring Banking
Industry in Bangladesh

Bangladesh Bank (BB): Issuing regulation and monitoring the banks

Institute of Chartered Accountants of Bangladesh (ICAB): Assist on
Issuing regulation

Ministry of Finance (MOF): Issuing regulation through Bangladesh Bank
(BB)

Ministry of Law, Justice and Parliamentary Affairs (MOLJPA): Issuing
regulation

Securities and Exchange Commission of Bangladesh (SEC): Issuing
regulation and monitoring the banks

Dhaka Stock Exchange (DSE) and Chittagong Stock Exchange (CSE):
Monitoring the banks

38
Annexure-1: Mandatory Disclosure Provisions under Banking Companies Act, 1991


Section of
Banking
Companies
Act, 1991
Disclosure Provisions
Section 2 The provisions bearing of this Act shall be in addition to and not, save
as hereinafter express by provided, in derogation of, the Companies Act,
1994 and any other laws for the time being in force. In addition, as the
banking companies are registered with the registered joint stock
companies, the banking companies should comply with the provisions of
the Companies Act 1994 if otherwise expressed in the Banking
Companies Act, 1991
Section 24

Every bank shall make a reserve fund and if the amount in that fund
together with amount in the share premium account is below the amount
than its paid up capital. Bank will transfer to the reserve fund not less
than 20 on profit before tax and it should be disclosed in the profit and
loss account made under section 38 of this Act.
Section 25 Every bank shall maintain a cash reserve fund not less than 5% with
Bangladesh Bank or its agent bank and that should disclosed in the
financial statements.
Section 33 The detailed disclosure provisions with regard to the liquid assets of the
banking companies in Bangladesh.

Section 36 Every Bank company shall submit reports to the Bangladesh Bank on
the 31
st
day of December and 30
th
day of June of each year showing its
assets and liabilities in the prescribed form and manner.
Section 37 For the purpose of benefit of public, Bangladesh Bank may publish in
consolidated form or otherwise any information contained by it under
this Act relating to overdue loans and advances of more than thirty days.
Section 38 The Accounts and Balance Sheet: should prepared as per BRPD circular
3/2000 and also the provision of the Companies Act, 1994 (Schedule XI
of this Act). As per section 39, financial statement should be audited by
a person who is qualified according to the Bangladesh Chartered Order,
1973.
Section 39
(3)

An auditor is required to state whether or not adequate provisions have
been made, financial reports has been made in accordance with the
standard issued by the Bangladesh Bank.

Section 40

The accounts and balance sheet shall be submitted to Bangladesh Bank
within the three months of the close of the period to which they relate.
Section 41

The bank is required, if it is a private company, to submit the accounts
and balance sheet to registrar.
Section 42

Every banking company incorporated outside Bangladesh shall not later
than the 1
st
Monday in February of the year when it runs the business,
39
display a copy of the last balance sheet and profit and loss account made
under section 38 in a conspicuous place in its principal office and every
branch office in Bangladesh until submitted by a copy of the subsequent
balance sheet and accounts are displayed in the same way.



Annexure 2: Mandatory Disclosure Provisions under IAS 30 (BAS 30)


Para Mandatory Disclosure Provisions
Para 8 Like other business entity, banks may use different methods for
recognition and measurement of items in their financials. So, for better
understanding of the users of financial statements, banks should disclose
the accounting policies that are followed for preparing financial
statements. Banks should disclose the following; Policy regarding the
recognition of the principal types of income; policy regarding the valuation
of investment and dealing securities; the distinction between those
transactions and other events that result in the recognition of assets and
liabilities on the balance sheet and those transactions and other events that
only give rise to contingencies and commitments; the basis for the
determination of losses on loans and advances and for writing off
uncollectible loans and advances; the basis for the determination of
charges for general banking risks and the accounting treatment of such
charges.
Para 9 In the income statement, income and expenses should be presented as
grouped by nature and principal types of income and expenses should be
disclosed separately.
Para 10 It has provided some prescribed items of income statement that includes
interest and similar income; Interest expense and similar charges; Dividend
income; Fee and commission income; Fee and commission expense; Gain
less loss arising from dealing securities; Gain less loss arising from
investment securities; Gain less arising from dealing in foreign currencies;
Other operating income; Losses on loans and advances; and Other
operating expenses.
Para 11 The principal types of income, interest, fees for services, commission and
dealing results should be separately disclosed.
Para 12 The principal types of expense, interest, commissions, losses on loans and
advances, charges relating to the reduction in the carrying amount of
investments and general administrative expenses should be disclosed
separately.
Para 13 Income and expense items should not be offset except for those relating to
hedges and to assets and liabilities which have been offset in accordance
with paragraph 23.
Para 15 The gain and losses arising from each of the following are normally
reported on a net basis: Disposal and changes in the carrying amount of
dealing securities; Disposal of investment securities and Dealing in foreign
40
currencies.

Para 16 It prescribes that interest income and interest expense should be disclosed
separately.
Para 17 Governments assistance to bank by making deposits and other credit
facilities should be disclosed.

Para 18 It favored that assets and liabilities should be grouped as their nature and
presented as their liquidity. Regarding the classification and disclosure of
Balance sheet items.

Para 19 The following items should be disclosed in the balance sheet of a bank:
Cash and balance with the central bank; Treasury bills and other bills
eligible for rediscounting with the central bank; Government and other
securities held for dealing purposes; Placements with, and loans and
advances to, other banks; Other money market placements; Loans and
advances to customers; Investment securities; Deposits from other banks;
Other money market deposits; Amounts owed to other depositors;
Certificates of deposits; Promissory notes and other liabilities evidenced
by paper; and Other borrowed funds.
Para 20 It is no longer required to group the assets and liabilities as currents and
non-currents.
Para 21 The balance with the central bank, placement with other banks and other
money market placements should be shown separately. Bank also should
separately present deposits from other banks, other money market deposits
and other deposits.
Para 23 The bank should not offset any asset or liability with other liability or asset
unless a legal right of set-off exists and the offsetting represents the
expectation as to the realization or settlement of the asset or liability.
Para 24 The bank should disclose the fair values of each class of its financial assets
and liabilities regarding the presentation the classification of financial
assets.
Para 25 The classification should be made under the following heads: Loans and
receivables originated by the enterprise; held to maturity investments; held
for trading; and available-for-sale.
Para 26,
27, 28 &
29
The bank should disclose the contingent liabilities and commitments
because these are significant in amount and risk and may be revocable or
irrevocable.
Para 30,
31 & 32
The maturity grouping of assets and liabilities should be disclosed by the
bank.
Para 34 In the maturity grouping, maturity period of assets and liabilities should be
same.
Para 35 The maturity could be expressed in terms of the remaining period to the
repayment date; the original period to the repayment date; or the remaining
period to the next date at which interest rates may be changed.
Para 36 The bank should disclose an analysis expressed in terms of contractual
41
maturities. In case if there is no contractual maturity date.
Para 37 The bank should assume the expected date on which the assets will be
realized.

Para 39 The management may provide, in its commentary on the financial
statements, information about the effective periods and about the way in
manages and controls the risks and exposures associated with different
maturity and interest rate profiles.
Para 40 The bank should disclose any significant concentrations of its assets,
liabilities and off balance sheet items. Such disclosures should be made in
terms of: Geographical areas; Customer or industry group or other
concentration of risk. In addition, a bank should also disclose the amount
of significant net foreign currency exposures.
Para 43 The bank should disclose about the provision for losses on loans and
advances.
Para 44 Any amount set aside in respect of losses on loans and advances in
addition to those losses that have been specifically identified or potential
losses which experience indicates are present in the portfolio of loans and
advances should be accounted for as appropriation of such retained
earnings.
Para 47 The movements in the provision, including the amounts previously written
off that have been recovered during the period, are shown separately.
Para 50 Any amount set aside for banking risks should be separately disclosed as
appropriation of retained earnings.
Para 53 A bank should disclose the aggregate amount of secured liabilities and the
nature and carrying amount of the assets pledged as security.
Para 56 The disclosure of related party transactions.
Para 57 The accounting polices regarding uncollectible loans and advances.
Para 59 Any amount set aside in respect of general banking risk should be
separately disclosed as appropriation of retained earnings.
Para 60 Secured liabilities and assets pledged as security.