Accounting

Application of Different IAS/IFRS in Preparing Financial

Statements-A Study of Bangladeshi Private Commercial Banks
Md Ali Arshad Chowdhuary
Mostafa Ali
and
Reza Humayun Morshed Hayat ACA, ACMA

Prelude:
Quality financial reports provide information that is reliable,
comparable, relevant and, of course, transparent to the
potential users resulting in an enhanced investor confidence.
Uniform financial report is possible if it is prepared in
accordance with complying accounting standards set by the
different national and international accounting bodies.
Uniformity of financial reporting is emergent because
effective competition among the capital markets of the world
may be impaired in its absence and the difficulties in financial
analysis might lead to intractable costs of capital as well as
might hamper cross boarder financing decisions (Salim, The
Bangladesh Accountant, October-December.’05.). Uniform
accounting standards provide efficiency gain both internally
and externally. A similar internal reporting system gives the
chance of better comparisons, less confusion and mistakes
between the parts of the company and external reporting
system provides uniform performance figures in different
countries (Salim, The Bangladesh Accountant, January-
March,’06.). Good financial reporting based on widely
accepted accounting principles, policies and practices
facilities, and effective communication encourages flow of
investment funds and thereby accelerates economic growth.
Such demand creates a strong case for convergence with the
IASs and IFRSs (Nayeem, The Bangladesh Accountant,
October-December.’05.). Application of IASs and IFRSs
would reflect greater “accountability” of corporate
management and “transparency” of published financial
information as well as enhance the “credibility” of the
statutory audit function of Bangladesh. This will make the
business environment in Bangladesh more transparent and
thus enable the country to attract foreign and local investment
which ultimately contributes to business growth and
economic development of the country. Since Bangladesh tries
to move forward to the process of globalization, so it has to
take initiative to prepare uniform financial statements in
accordance with IASs and IFRSs which will overcome a
major global challenges facing business enterprises.
Statement of the problem/ The Study Rational:
Bank is a very old financial institution that is contributing
toward the development of any economy and is treated as an
important service industry in modern world. Now a days the
function of bank is not limited to within the same
geographical limit of any country. Due to globalization and
free market economy, this industry is facing severe
competition in any country and implementation of WTO will
further increase the competition. Commercial banks are the
most dominant financial institutions in the domain of
commerce and industry. The efficiency of Commercial bank
depends on its productivity, profitability, maintenance of
accounting standards and disclosure thereof.
Despite recurrent floods, devastating cyclone, temporary
disruption in domestic production and supply, widespread
outbreak of avian influenza (bird flu) in the poultry sector,
persistent price hike of essential commodities including fuel
oil in the global market and the recent financial crisis in the
world market, Bangladesh banking sector plays a vital rule in
the economy. The services sector contributed 49.10 percent of
the total GDP. Monetary intermediation (banks) was
estimated to achieve a moderate growth of 7.10 percent,
reflecting healthy profit margin in the private sector banks
(Annual Report, Bangladesh Bank ’06-’07.). Banking sector

Md Ali Arshad Chowdhuary, Lecturer, Department of Accounting and Information Systems, Chittagong University, Chittagong, Mostafa
Ali, Lecturer, Department of Finance and Banking, Chittagong University, Chittagong and Reza Humayun Morshed Hayat ACA,
ACMA, Head of Audit, Aramit Group, Head of Accounts Aramit Footwear and Alu.

The Bangladesh Accountant/January- March 2010 1

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provides facilities to rebuild the agriculture, industry as well
as services sector by allowing loans, credit and advances. It
creates an opportunity of lucrative jobs for its better
employment structure. Moreover, it contributes to overcome
the volatility in capital market of Bangladesh. The banking
sector accounted for 53 percent of total market capitalization
in June 2008 with only 46 listed companies out of 294 listings
(Bangladesh Bank Quarterly, April-June,’08.).
Disclosure requirements relating to financial statements of
banks and similar institutions are contained in IAS-30. Since
banks operation differ in many material respects from other
commercial enterprises and liquidity and solvency is of
paramount importance, their financial reporting inevitably
will be somewhat specialized in nature. Some of IAS-30
disclosures have been made mandatory for banks, keeping in
view the special characteristics of banks operations and the
role they play in maintaining public confidence in the
monetary system of the country through their close
relationship with regulatory authorities and the government.
Further, a bank is exposed not only to liquidity risk but even
risk arising from currency fluctuation, interest rate
movements, changes in market prices and counter party
failure (Willey, IFRS 2005). Institute of Chartered
Accountants of Bangladesh (ICAB) adapted the standard
IAS-30 with minor changes in para 9,10,24,25 as BAS-30 on
27 January 1998. Standards adopted by ICAB are
recommendery but not compulsory for the users (Milan and
kanchan, Commerce Education in the New Millennium.).
Bangladesh Bank, the controlling authority of private banks
in Bangladesh, in exercise of powers given to them under
section 38(4) of the Banking Companies Act 1991, amended
the form of Balance Sheet and Profit and Loss Account
(BPRD Circular No. 14 dated 25 June 2003) and added to
disclose Cash Flow Statement in accordance with BAS-7 and
statement in changes in equity in accordance with BAS-1 and
status of liquidity.
Standards are of little value unless they are observed. The real
challenges therefore lie in application of the standards. The
main challenges faced for speedy implementation of
IASs/IFRSs are the following (Nayeem, The Bangladesh
Accountant; October- December,’05.):
• Lacking of general awareness about BAS/IAS.
• Lacking of proper understanding and technical knowledge.
• Lacking of overall accountability and transparency.
The Bangladesh Accountant/January- March 2010
• The deep-rooted culture and strong mind set of the
management for minimum disclosure mainly with a view
to pay least tax or no tax.
• Recommendatory nature of BAS, so far ICAB members
are concerned.
• Lack of implementation guidelines for BASs/IASs
application.
As a result Banking Sector, one of the leading structured
industries controlled by the BB, in what extend the
accounting standards are complied with, is of our prime
concerning matter in this paper.
Objective of the study:
The main objective of the research work is to examine
whether the banking companies of Bangladesh followed or
observed the adapted IASs and IFRSs. To achieve this main
objective, the followings specific objectives of the study are
identified:
a. To examine the disclosures of the minimum requirements
of Income Statement and Balance Sheet items as per IAS-
30 (Para 9, 10, &19).
b. To know whether the statement of changes in Equity
disclosed according to IAS-1 (Para-96) or not.
c. To verify the minimum requirements in disclosing
accounting policies as per IAS-1 (Para-99, 108,110).
d. To know the application of IAS-7 (Para-1, 10, 13) in
presenting cash flow statement.
e. To highlight the various issues of IAS-30 (Para-24, 25,
26, 30, 40).
f. To test whether the companies observed or not the IAS-
16 (Para-73), IAS-33 (Para-66, 69, 70), IAS-10 (Para-21).
Methodology & Scope of the Study:
Secondary data as well as desk research method was used for
the purpose of the study. Secondary data and information
were collected from existing literature in the field of
international accounting. Out of 30 private commercial
banking companies, 12 were selected randomly for the
purpose of the study. All the selected companies’ annual
reports of 2007 were considered for examining the
application of IAS/IFRS in disclosing or preparing financial
statement. Though, a great number of important issues were
available for checking but the authors considered the existing
emergent issues of IASs/IFRSs that has a public interest
globally. In desk research, the supporting and relevant
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research material were evaluated in order to present the facts
in a logical format. It covered research papers, articles, text
books, publications, web sites of international accounting
standards setting bodies, Bangladesh Bank annual reports
different published statistics related to banking companies
and various published and unpublished research materials on
this subject.
At present, there are 48 banking companies in Bangladesh out
of which four nationalized commercial banking companies,
five specialized banking companies, 30 private commercial
banking companies and nine foreign commercial banking
companies. From these, the study was limited to only private
commercial banking companies which covered only 40
percent of Private Commercial Banks (PCBs) and 25 percent
of total banking companies. It is also noticeable that the study
covered only the period of 2007(January-December).

Analysis and Finding:

Minimum requirements for Balance Sheet items according to IAS-30 (Para 19):

Assets Liabilities
a. Cash and balances with Central Bank a. Deposits from other banks
b. Treasury bills and others bills eligible for b. Other money market deposits
rediscounting with central bank
c. Government and other securities held for dealing purposes c. Amount owed to other depositors
d. Placements with and loans and advances to, others banks d. Certificates of deposits
e. Other money market placements e. Promissory notes and other liabilities evidenced by paper
f. Loans and advances to customers f. Others borrowed funds.

Almost all the sample companies follow the IAS requirements but the names of the headings are slightly different from the
above-mentioned headings which are given as follows:

Assets Liabilities
a. Cash in hand a. Borrowing from other banks, financial institutions
b. Cash balance with Bangladesh Bank (BB) b. Deposits and other accounts
and its agent banks - Current deposits
c. Balance with other banks and financial institutions - Demand deposits
(in /outside Bangladesh) - Bills payable
d. Money at call and on short notice (with banking/ - Saving bank deposits
non-banking companies) - Short term deposits
e. Investment in government securities - Fixed deposits
f. Investment in others - Bearer certificates of deposits
g. Loans and advances - Other deposits
h. Bills purchased and discounted
i. Fixed assets

IAS-30 (Para 24 and 25):

The fair values of each class of financial assets and financial liabilities, as required by IAS-32 and IAS-39, should be disclosed.
According to IAS-39, the four classifications of financial assets are:

a. Loans and receivables originated by the entity No financial companies follow the classifications and not disclosed
b. Held to maturity investment any information as required by the section due
c. Financial assets held for trading, and to the incompliance of the paras in BAS-30.
d. Available for sale financial assets.

The Bangladesh Accountant/January- March 2010 3

IAS-30 (Para-26): Contingencies and Commitments
Accounting
including Off-Balance Sheet items.
The disclosures required in this regard are the following:
a. The nature and amounts of commitments to extend
credits that are irrevocable because they can not be
withdrawn at the discretion of the bank without incurring
significant penalty or expenses.
b. The nature and amount of contingencies and
commitments arising from off balance sheet items
including those relating to,
i. Direct credit substitutes, which include general
guarantees of indebtness, bank acceptances and
standby letters of credits, which serve as financial
back up for loans and securities.
ii. Transaction related contingencies, which includes
performance bonds, bid bonds, warranties and stand
by letter of credit related to particular transaction.
iii. Short term self liquidating, trade related contingent
liabilities arising from movement of goods such as
documentary credits where underlying shipment is
used as security and
iv. Other commitments including other Off-Balance
Sheet items such as revolving underwriting
The Bangladesh Accountant/January- March 2010
facilities and note issuance facilities.
All the sample companies disclosed off-balance sheet items
as contingencies and commitment but Bangladeshi banking
companies (sample) hasn’t any information about
commitments rather than following contingencies headings:
Contingent Liabilities:
a. Acceptances and endorsements
b. Letters of guarantee
c. Irrevocable Letters of Credit
d. Bills for collection
e. Other contingent liabilities.
IAS-30 (Para-30):
An analysis of assets and liabilities into relevant maturity
groupings based on remaining periods at the balance sheet
data to the contractual maturity date should be disclosed.
All the sample companies maintained the section by
disclosing the following groups-
- On demand
- Less than three months
- More than three months but less than one year
- More than one year but less than five years
- More than five years.
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3. Companies should report on their market risk by
analyzing different types of market variables such as
interest rate, exchange rate and equity markets.
Not only qualitative information but also present or prepare a 7.
quantitative interest rate sensitivity position for future
decision making.
4. For measuring currency risk, companies should prepare
a schedule of breakdown of assets and liabilities by
currencies.
5. The companies should disclose equity risk, issuer risk, 8.
credit risk and liquidity risk. All these risks can be
measured by maturity analysis of assets and liabilities. 9.
6. Risk Weighted Assets (RWA) basically depends on
credit risk, other assets and market risk. The company
should prepare a schedule to understand the degree of
risk involved in assets.
In the cash flow statement, the following matters should
be disclosed:
a. Amount of indrawn borrowing facilities including
restriction on their use, if any.
b. Amount of cash flows segregated by reported industry
and geographical segments.
All the banking companies should follow companies
should follow the similar depreciation method.
Losses on loans and advances should be disclosed
according to IAS-30 (Para-39). n

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Ahmed, Jamaluddin Karim, and Wares, AKM, 2005, Compliance to International Accounting Standards in Bangladesh, The Bangladesh Accountant (July
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Annual Report, 2006- 2007, Bangladesh Bank.
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Bangladesh Accountant (October-December).
Bangladesh Bank Bulletin (April-June), 2007.
Bangladesh Bank Quarterly (April- June), 2008, 5(4).
Epstein, Barry J., and Mirza, Abbas Ali, 2005, Willey IFRS 2005: Interpretation and Application of IASs and IFRSs: 848-900, Hoboken, New Jersey: John Willey
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Appendix –A:
1. Shahjalal Islami Bank Limited.
2. Pubali Bank Limited.
3. Standard Bank Limited.
4. AB Bank Limited.
5. Dhaka Bank Limited.
6. One Bank Limited.
7. Dutch-Bangla Bank Limited.
8. National Bank Limited.
9. Bank Asia Limited.
10. NCC Bank Limited.
11. EXIM Bank Limited.
12. Trust Bank Limited.

The Bangladesh Accountant/January- March 2010 9