Accounting and Reporting Practices of Islamic Banks in Bangladesh

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Accounting and Reporting Practices of Islamic Banks in Bangladesh
Thesis · April 2013
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Md. Hafij Ullah

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Accounting and Reporting Practices of Islamic Banks in
Bangladesh
Dissertation
Submitted to the University of Chittagong for the Degree of Masters of
Philosophy
Supervised By
K. M. Golam Muhiuddin
Professor of Accounting and Information Systems
University of Chittagong
Md. Hafij Ullah
Department of Accounting and Information Systems

Chittagong, Bangladesh
April, 2013
1
Dedication
To
My Parents
Sources of my all inspiration
2
Declaration
I, Md. Hafij Ullah, hereby declare that this M. Phil Dissertation titled ‘Accounting and
Reporting Practices of Islamic Banks in Bangladesh’ is based on a study undertaken by
me under the Department of Accounting and Information Systems, University of
Chittagong.
To the best of my knowledge, the work presented in this dissertation is original except as
acknowledged in the text. All sources used in the study have been cited and no attempt
has been made to project the contributions of others as my own. Also, the material has
not been submitted, either in whole or in part for a degree in this or any other University.
Md. Hafij Ullah
3
Professor K. M. Golam Muhiuddin Date: April 30, 2013
Chittagong
Bangladesh.
Certificate
This is to certify that this study titled ‘Accounting and Reporting Practices of Islamic
Banks in Bangladesh’ is an original research work carried out by Mr. Md. Hafij Ullah
under my direct supervision. So far I know the work is his genuine investigation and not
submitted to any university or institution for any degree. I have gone through the final
draft and approved it for submission to the University of Chittagong for the award of the
degree of Master of Philosophy.
Professor K. M. Golam Muhiuddin

Supervisor
4
Acknowledgements
AL-Hamdu-Lillah, at first I would like to thank Almighty Allah (SWT) Who gave me
the opportunity and showered me with endless Rahma for completion of the study.
I would like to show heart-felt gratitude to our most respected teacher Professor Dr. Md.
Abdul Hye, for his sincere help, constant encouragement and guidance from the very
inception to the completion of this research work. Without whose invaluable suggestions,
it would not have been possible to complete the study.
I am highly indebted to K. M. Golam Mohiuddin, Professor, Department of Accounting

and Information Systems, Ex-Dean, Faculty of Business Administration, University of
Chittagong, and My Honorable Supervisor of this research work. He is the key
personality whose repeated inspiration, guidance, support, advice was the main
foundation of this arduous research work.
I am also thankful to the authority of International Islamic University Chittagong,

specially Professor Dr. Azharul Islam, Honorable Vice Chancellor, Ex-VC Professor Dr.
M. Mahbub Ullah (Late), Professor Dr. Abu Bakr Rafique, Honorable Pro-Vice
Chancellor and Sqn Ldr (Retd.) Muhammad Nurul Islam, Honorable Registrar, for their
kind support in this regard.
I also owe to Dr. Syed Mohammad Ather FCMA, Professor, Department of Management
Studies, CU; Professor, Dr. Harunur Rashid, Chairman, Dept of Accounting and
Information Systems, CU; Professor Dr. Sultan Ahmed, Ex-Chairman, Department of
Accounting and Information Systems, CU; Dr. Mohammad Shamim Uddin Khan,
Professor, Department of Finance and Banking, CU.
I also take the opportunity to express my thanks to My Honorable teachers Professor

Amal Bhushan Nag, Professor Dr. Monjur Morshed Mahmud, Professor Dr. Shanti
Ranjan Das, Professor Dr. Abdur Rahman, Professor Dr. Ayub Islam and Dr. Md.
Anwarul Kabir of the Department of Accounting and Information Systems, Chittagong
University, for their valuable suggestions.
I am grateful to HEQEP, unit 141, working under the Sub-Manager of Professor K. M.

Golam Mohiuddin, Department of Accounting and Information Systems, Chittagong
University. I am also indebted to Dr. Shazad N. Uddin, Professor of Essex Business
School, University of Essex, UK; Dr. Shafiqul Islam, Professor, Department of Statistics,
CU; Dr. Mohammad Abdul Karim, Dean, Faculty of Physical Science, and Professor of
Statistics, CU and Mr. Md. Saiful Islam, Associate professor of Economics, CU for their
help in research ideas, statistical analysis and using SPSS Software.
My sincere thanks due to Dr. Abdul Hamid Chowdhury, Associate Professor & Head,
DBA, IIUC for his valuable support and help in statistical analysis of the work. I am also
thankful to Dr. Farid Ahmed Sobhani, Professor, DBA; Mr. Mohammad Shamsul Karim,
Associate Professor & Ex-Head, DBA; Mr. Muhammad Mahbubur Rahman, Associate
5
Professor & Ex-Head, DBA; Mr. Serajul Islam, Associate Professor, DBA; Mr. Monir
Ahammed, Nazamul Haque, Md. Shahnur Azad Chowdhury, Mr. Mohammad Rokibul
Kabir, Mr. AHM Noman bin Alam and Musa Khan, Assistant Professor, DBA, IIUC.
I would like to thank Mr. Md. Rabiul (Tushar) ACA, Assistant Manager, Rahman
Rahman Huq, Chartered Accountants and Mr. Jiban Chandra Das FCA, General Manager
(Finance & Accounts), DSE, for their help and inspirational words regarding the study. I
also should give thank to Md. Nazrul Islam, Senior Officer of IBBL; My beloved
students Md. Yunus and Tanvir for their help in this regard.
This note would remain incomplete if I do not show my gratitude to all those authors and
researchers whose work I used in designing the research and in preparing this thesis. I
also should give thank to all respondents including accounting professors, professional
accountants, Islamic bankers, stock brokers and investors for sacrificing their valuable
time to fill up the questionnaire.
I shall remain thankful to my younger brothers, relatives and all of my friends for their
supports and inspirations. I am also grateful to all other people who have helped me in
one way or another in completing the study but I could not remember their name.
I shall remain ever grateful to Mrs. Ruma Khanam, My better half and my little angels
Sahl Tajdeed Bin Hafij and Jumaimah Marzuqa Binte Hafij for their inspiration for
successful completion of the study.
(Md. Hafij Ullah)

30 April, 2013
6
Table of Contents
Dedication i
Declaration ii
Certificate iii
Acknowledgements iv
Table of Contents vi
List of Tables
List of Graphs
List of Appendices
List of Abbreviations
Abstract
Chapter One: Introduction

1.1 Background
1.2 Rationale of the Study
1.3 Objectives of the Study
1.4 Scope of the Study
1.5 Limitations of the Study
1.6 An Overview of Sample Islamic Banks
1.7 Structure of the Thesis
1.8 Conclusion
Chapter Two: Research Design and Methodology

2.1 Introduction
2.2 Selection of Islamic Banks
2.3 Selection of Period
2.4 Types of Data
2.5 Collection of Secondary Data
2.6 Collection of Primary Data
2.6.1 Preparation of Questionnaire
2.6.2 Primary Data Collection Method
2.6.3 Selection of Sample Respondents
2.7 Selection of Reporting Index
2.8 Tools used for Analysis
2.9 Items included in the Disclosure Index
2.10 Hypothesis of the Study
2.11 Conclusion
Chapter Three: Literature Review

3.1 Introduction
3.2 Literature Review regarding Financial Reporting in General
3.3 Literature Review regarding Conventional Banks and Financial
Institutions
7
3.4 Literature Review regarding Financial Reporting of Islamic Banks
3.5 Conclusion
Chapter Four: The Context of the Study

4.1 Introduction
4.2 An Overview on Bangladesh
4.3 Banking History in Bangladesh
4.4 Islamic Banking—The Foundations
4.5 Islamic Banking—The Historical Context
4.6 Islamic Banking- Bangladesh Context
4.7 Banking Companies in Bangladesh
4.8 Conclusion
Chapter Five: Conceptual and Legal Framework of Accounting and

Reporting in Bangladesh
5.1 Accounting and Reporting
5.2 Techniques of Reporting
5.3 Types of Reporting Information
5.4 Users of Accounting Reports
5.5 Qualitative Characteristics of Accounting Information
5.6 Accounting for Islamic Organizations
5.7 Objectives of Accounting and Reporting by Islamic Organizations
5.8 Islamic Accounting and Reporting Model
5.9 Differences between Western Reporting and Islamic Reporting
5.10 Development of Accounting Objectives, Standards and Practices
5.11 Organizations governing accounting and reporting practices of
Islamic Banks
5.12 Laws, Regulations and Guidelines for Accounting and Reporting
of Islamic Banks
5.12.1 The Companies Act, 1994
5.12.2 The Banking Companies Act, 1991
5.12.3 The Securities and Exchange Rules, 1987
5.12.4 The Securities and Exchange Ordinance, 1969
5.12.5 Income Tax Ordinance, 1984
5.12.6 Accounting and Auditing Organization for Islamic Financial
Institutions (AAOIFI) Standards
5.12.7 Islamic Financial Service Board (IFSB) Standards
5.12.8 International Accounting Standards and International Financial
Reporting Standards (IAS/IFRS)
5.12.9 SEC Notifications
5.12.10 Bangladesh Bank Circulars (BRPD Circular)
5.12.11 The Nationalization Orders of 1972 & 1973
5.12.12 Listing Requirements of DSE and CSE
5.13 Conclusion
8
Chapter Six: Evaluation of Disclosure in Annual Reports and Accounts
6.1 Introduction
6.2 Sample-wise Disclosure Score
6.2 (a) Sample-wise Disclosure Score and its Statistical Explanation
6.2 (b) Graphical Presentation of Sample-wise Disclosure Score
6.3 Year-wise Disclosure Score of the Sample Islamic Banks
6.4 Increasing trend of Year-wise Disclosure Score
6.5 Comparative Disclosure Levels by the Sample Islamic Banks
6.6 Distribution of the Index Items into different parts of Annual
Reports
6.7 Ranking of Islamic Banks in the Sample
6.8 Average of Scoring for the Period under Study
6.9 Descriptive Statistics of various Sections of Disclosure under UDI
6.10 Maximum and Minimum Disclosure Presentation
6.11 Year-wise Disclosure Score regarding CPI
6.12 Sample-wise Disclosure Score regarding CPI
6.13 Year-wise Disclosure Score regarding API
6.14 Sample-wise Disclosure Score regarding API
6.15 Year-wise Disclosure Score regarding BSIA
6.16 Sample-wise Disclosure Score regarding BSIA
6.17 Year-wise Disclosure Score regarding BSIL
6.18 Sample-wise Disclosure Score regarding BSIL
6.19 Year-wise Disclosure Score regarding ISIC
6.20 Sample-wise Disclosure Score regarding ISIC
6.21 Year-wise Disclosure Score regarding ISID
6.22 Sample-wise Disclosure Score regarding ISID
6.23 Year-wise Disclosure Score regarding PBD
6.24 Sample-wise Disclosure Score regarding PBD
6.25 Year-wise Disclosure Score regarding RSD
6.26 Sample-wise Disclosure Score regarding RSD
6.27 Year-wise Disclosure Score regarding MVM
6.28 Sample-wise Disclosure Score regarding MVM
6.29 Graphical Presentation of the Extent of different Sections of
Disclosure
6.30 Items of Information disclosed by all Sample Islamic Banks
6.31 Items not disclosed by any sample Islamic Banks
6.32 Summary and Conclusion
9
Chapter Seven: Industry attributes and Volume of Reporting
Information
7.1 Introduction
7.2 Disclosure studies of some Researchers and their Results about
relationship
7.3 Hypotheses for the Study
7.4 The Dependent Variables, Independent Variables and Hypotheses
7.4(a) Size of the bank
7.4(b) Age of the bank
7.4(c) Profitability
7.4(d) Investment Deposit Ratio (IDR)
7.4(e) Capital Adequacy Ratio (CAR)
7.4(f) Debt Equity Ratio (DER)
7.5 Regressional Studies of Disclosure Score vs. Bank Size
7.5(a) Regressional Studies between Disclosure Score vs. Total Assets
(TA)
7.5(b) Regressional Studies between Disclosure Score vs. Gross Revenue
(GR)
7.5(c) Regressional Studies between Disclosure Score vs. No. of Branches
(NOB)
7.6 Regressional Studies between Disclosure Score vs. Age
7.7 Regressional Studies of Disclosure Score vs. Profitability
7.7(a) Regressional Studies between Disclosure Score vs. EPS
7.7(b) Regressional Studies between Disclosure Score vs. ROA
7.7(c) Regressional Studies between Disclosure Score vs. ROI
7.7(d) Regressional Studies between Disclosure Score vs. NPM
7.8 Regressional Studies of Disclosure Score vs. Investment Deposit
Ratio (IDR)
7.9 Regressional Studies of Disclosure Score vs. Capital Adequacy
Ratio (CAR)
7.10 Regressional Studies of Disclosure Score vs. Debt Equity Ratio (DER)
7.11 Multiple Regression Models
7.12 Regressional Studies of Disclosure Score vs. Multiple Variables
7.13 Independent Variables with their Labels and Association in the
Regression
7.14 Correlation Analysis
7.14(a) Correlation Matrix for the year 2006
7.14(b) Correlation Matrix for the year 2007
7.14(c) Correlation Matrix for the year 2008
7.14(d) Correlation Matrix for the year 2009
7.14(e) Correlation Matrix for the year 2010
7.14(f) Correlation Matrix for the years 2006-2010
7.15 Discussion of the Results
7.16 Comparison of the Results with Other Studies
10
Chapter Eight: Analysis of the Results of the Questionnaire Survey
8.1 Introduction
8.2 Test of Hypothesis
8.3 Preparation and Collection of Questionnaire
8.4 Questionnaire Survey
8.5 Results of Previous Studies
8.6 Educational Qualifications of the Respondents
8.7 Professional Educational Qualification of the Respondents
8.8 Age Distribution of the Respondents
8.9 Working Experience of the Respondents
8.10 Accounting Qualification of the Respondents
8.11 Opinion of the Respondents regarding Purposes of Using Islamic
Banking Reports
8.12 Opinion of the Respondents regarding Mostly Read Part of Islamic
Banking Reports
8.13 Opinion of the Respondents regarding Comparative Reliability of
the Islamic Banking Information
8.14 Opinion of the Respondents regarding Compliance of BAS, BFRS,
Companies Act, Banking Companies Act and SEC rules, etc.
8.15 Opinion of the Respondents regarding Compliance of AAOIFI
Financial Accounting Standards
8.16 Opinion of the Respondents regarding Adequacy of Disclosure by
Islamic Banks
8.17 Opinion of the Respondents regarding Effectiveness of the
Information of the Islamic Banks
8.18 Opinion of the Respondents regarding Usefulness of the
8.19 Opinion of the Respondents regarding Understandability of the
8.20 Opinion of the Respondents regarding Relevancy of the
8.21 Opinion of the Respondents regarding Predictive Value of the
8.22 Opinion of the Respondents regarding Feedback Value of the
8.23 Opinion of the Respondents regarding Timeliness of the
8.24 Opinion of the Respondents regarding Reliability of the
8.25 Opinion of the Respondents regarding Verifiability of the
8.26 Opinion of the Respondents regarding Faithfulness of the
8.27 Opinion of the Respondents regarding Neutrality of the
11
8.28 Opinion of the Respondents regarding Comparability of the
8.29 Opinion of the Respondents regarding Consistency of the
8.30 Opinion of the Respondents regarding Effectiveness of Accounting
Information Systems of the Islamic Banks
8.31 Opinion of the Respondents regarding Compliance of Rules
regarding Appointment of Auditors of the Islamic Banks
8.32 Opinion of the Respondents regarding Quality of Audit of the
Islamic Banks
8.33 Findings of the Survey
8.34 Conclusion
Chapter Nine: Findings Summary, Recommendations and Conclusion

9.1 Introduction
9.2 Major Findings of the Study
9.3 Recommendations of the Study
9.4 Contribution of the Study
9.5 Practical Implications
9.6 Direction for Further Research
9.7 Conclusion
Bibliography
Appendices
12
List of Tables
Table: 1.1 Islamic banking industry in Bangladesh at the end of 2010
Table: 2.1 Showing Selected Sample for the study
Table: 4.1 Showing the overall population, language, education and cultural
position of Bangladesh at a glance
Table: 4.2 Showing the overall economic position of Bangladesh at a
glance
Table: 4.3 Overall Banking Sector in Bangladesh at the end of 2010
Table: 5.1 Showing types of information reported by different
organizations
Table: 5.2 Showing the differences between Western Reporting and Islamic
Reporting
Table: 5.3 Showing organizations governing accounting and reporting of
Islamic banks
Table: 5.4 Showing Acts/Rules governing accounting and reporting of
Islamic banks
Table: 5.5 Showing short description of the different important provisions
for disclosure as per Companies Act
Table: 5.6 Showing provisions regarding disclosure as per Banking
Companies Act
Table: 5.7 Showing provisions regarding disclosure as per the SEC Rules,
1987
Table: 5.7 Showing provisions regarding disclosure as per the SEC Rules,
1987
Table: 5.8 Showing accounting & reporting provisions of Income Tax
Ordinance, 1984
Table: 5.9 Showing accounting statements and standards issued by AAOIFI
Table: 5.10 Showing standards issued by Islamic Financial Service Board
(IFSB)
Table: 5.11 Showing IAS/BAS/BFRS followed in accounting and reporting
Table: 5.12 Showing required reporting under condition no. 5.00 of the SEC
notification no. SEC/CMRRCD/2006-158/Admin/02-08
Table: 6.1 Sample-wise disclosure score of the sample banks under study
Table: 6.2 Year-wise disclosure score of the sample banks under study
Table: 6.3 Comparative disclosure levels by the sample banks
Table: 6.4 Distribution of the Index items into different parts of annual
reports
Table: 6.5 Ranking on average disclosure score of the sample banks
Table: 6.6 Average disclosure score of the various sections of UDI for the
period under study
Table: 6.7 Descriptive statistics of various sections of disclosure under UDI
Table: 6.8 Year-wise disclosure score of sample banks regarding company
profile items (CPI)
Table: 6.9 Sample-wise disclosure score of sample banks regarding
company profile items (CPI)
13
Table: 6.10 Year-wise disclosure score of sample banks regarding
accounting policy items (API)
accounting policy items (API)
Table: 6.12 Year-wise disclosure score of sample banks regarding Balance
Sheet Items-Assets (BSIA)
Balance Sheet Items-Assets (BSIA)
Table: 6.14 Year-wise disclosure score of sample banks regarding balance
sheet items-liabilities (BSIL)
Table: 6.15 Sample-wise disclosure score of sample banks regarding balance
sheet items-liabilities (BSIL)
Table: 6.16 Year-wise disclosure score of sample banks regarding income
statement items-Cr. (ISIC)
Table: 6.17 Sample-wise disclosure score of sample banks regarding income
statement items-Cr. (ISIC)
Table: 6.18 Year-wise disclosure score of sample banks regarding income
statement items-Dr. (ISID)
Table: 6.19 Sample -wise disclosure score of sample banks regarding
income statement items-Dr. (ISID)
projections and budgetary disclosure (PBD)
Table: 6.21 Sample -wise disclosure score of sample banks regarding
Table: 6.22 Year-wise disclosure score of sample banks regarding ratios,
statistics and other details (RSD)
Table: 6.23 Sample-wise disclosure score of sample banks regarding ratios,
measurement and valuation method (MVM)
Table: 6.26 Items reported by all Islamic banks in annual reports
Table: 6.27 Items not reported by any Islamic banks in annual reports
Table: 7.1 Previous studies on disclosure, Independent Variables and their
results
Table: 7.2 Regressional Studies between Disclosure Score vs. Total Assets (TA)
Table: 7.3 Regressional Studies between Disclosure Score vs. Gross
Revenue (GR)
Table: 7.4 Regressional Studies between Disclosure Score vs. Number of
Branches (NOB)
Table: 7.5 Regressional Studies between Disclosure Score vs. Age
Table: 7.6 Regressional Studies between Disclosure Score vs. Earning per
Share (EPS)
Table: 7.7 Regressional Studies between Disclosure Score vs. Return on
Assets (ROA)
14
Table: 7.8 Regressional Studies between Disclosure Score vs. Return on
Investment (ROI)
Table: 7.9 Regressional Studies between Disclosure Score vs. Net Profit
Margin (NPM)
Table: 7.10 Regressional Studies between Disclosure Score vs. Investment
Deposit Ration (IDR)
Table: 7.11 Regressional Studies between Disclosure Score vs. Capital
Adequacy Ration (CAR)
Table: 7.12 Regressional Studies between Disclosure Score vs. Debt-Equity
Ratio (DER)
Table: 7.13 Regressional Studies between Disclosure Score vs. Multiple
Variables
Table: 7.14 List of independent variables, their labels and significance levels
in the Regression
Table: 7.15 Correlation between disclosure score and independent variables
in 2006
Table: 7.16 Correlation between disclosure score and independent variables in
2007
in 2008
Table: 7.18 Correlation between disclosure score and independent variables in
2009
in 2010
for 5 years
Table: 8.1 Target sample and rate of collection of the questionnaire
Table: 8.2 Educational qualifications of the respondents
Table: 8.3 Professional educational qualification of the respondents
Table: 8.4 Age distribution of the respondents
Table: 8.5 Working experience of the respondents
Table: 8.6 Accounting qualification of the respondents
Table: 8.7 Opinion of the respondents regarding purposes of using Islamic
banking reports
Table: 8.8 Opinion of the respondents regarding mostly read part of Islamic
banking reports
Table: 8.9 Opinion of the respondents regarding comparative reliability of
the Islamic banking information
Table: 8.10 Opinion of the respondents regarding compliance of BAS, BFRS,
Table: 8.11 Opinion of the Respondents regarding Compliance of AAOIFI
Table: 8.12 Opinion of the respondents regarding adequacy of disclosure by
Islamic banks
Table: 8.13 Opinion of the respondents regarding effectiveness of the
information of the Islamic banks
15
Table: 8.14 Opinion of the respondents regarding usefulness of the
Table: 8.15 Opinion of the respondents regarding understandability of the
Table: 8.16 Opinion of the respondents regarding relevancy of the
Table: 8.17 Opinion of the respondents regarding predictive value of the
Table: 8.18 Opinion of the respondents regarding feedback value of the
Table: 8.19 Opinion of the respondents regarding timeliness of the
information of Islamic banks
Table: 8.20 Opinion of the respondents regarding reliability of the
Table: 8.21 Opinion of the respondents regarding verifiability of the
Table: 8.22 Opinion of the respondents regarding faithfulness of the
Table: 8.23 Opinion of the respondents regarding neutrality of the
Table: 8.24 Opinion of the respondents regarding comparability of the
Table: 8.25 Opinion of the respondents regarding consistency of the
Table: 8.26 Opinion of the respondents regarding effectiveness of
accounting information systems of the Islamic banks
Table: 8.27 Opinion of the respondents regarding appointment of auditors of
the Islamic banks
Table: 8.28 Opinion of the respondents regarding quality of audit of the
Islamic banks
16
List of Graphs
Graph: 5.1 Showing the hierarchy of qualitative characteristics of
accounting information
Graph: 5.2 Showing Islamic Accounting and Reporting Model
Graph: 5.3 Showing development of accounting objectives, standards and
practices
Graph: 6.1 Showing sample-wise disclosure score of the sample banks
Graph: 6.2 Showing increasing trend of year-wise disclosure score of the
sample banks
Graph: 6.3 Showing comparative disclosure levels by the sample banks
Graph: 6.4 Section-wise maximum and minimum disclosure presentation
under UDI
Graph: 6.5 Showing average disclosure score of various sections of UDI of
the sample banks under study
List of Appendices
Appendix-1 Sample wise t test results
Appendix-2 Year wise t test results
Appendix-3 Un-weighted Index of Disclosure with Corresponding Score
Appendix-4 Overall individual score received by each of the banks in the
sample as a percentage of the UDI
Appendix-5 Questionnaire
17
List of Abbreviations
AAA American Accounting Association
AAOIFI Accounting and Auditing Organization of Islami Financial Institutions
AGE Age
AGM Annual General Meeting
AIBL Al-Arafah Islami Bank Limited
AP Accounting Professor
API Accounting Policy Items
BAS Bangladesh Accounting Standards
BB Bangladesh Bank
BE Bank Executives
BFRS Bangladesh Financial Reporting Standard
BRPD Baking Rules and Publicity Department
BSIA Balance Sheet Items-Assets
BSIL Balance Sheet Items-Liabilities
CAR Capital Adequacy Ratio
CPI Company Profile Items
CSE Chittagong Stock Exchange
DER Debt Equity Ratio
DS Disclosure Score
DSE DSE Dhaka Stock Exchange
EPS Earning per Share
EXIM Export Import Bank of Bangladesh Limited
FASB Financial Accounting Standard Board
FSIBL First Security Islami Bank Limited
GAAP Generally Accepted Accounting Principles
GR Gross Revenue
IAS IAS International Accounting Standards
IBBL Islami Bank Bangladesh Limited
ICAB Institute of Chartered Accountants of Bangladesh
ICBIBL ICB Islami Bank Limited
18
ICMAB Institute of Cost and Management Accountants of Bangladesh
IDR Investment Deposit Ratio
IFRS International Financial Reporting Standard
IFSB Islamic Financial Service Board
ISIC Income Statement-Cr.
ISID Income Statement-Dr.
IV Investors
MVM Measurement and Valuation Method
NCB Nationalized Commercial Bank
NPM Net Profit Margin
NOB Number of Branches
PA Professional Accountant
PBD Projections and Budgetary Disclosure
ROA Return on Asset
ROI Return on Investment
RSD Ratios Statistics and Other Details
SB Stock Brokers
SEC Securities and Exchange Commission
SER Securities and Exchange Rules
SIBL Social Islami Bank Limited
SJIBL Shahjalal Islami Bank Limited
SPSS Statistical Package for Social Sciences
TA Total Assets
TD Total Disclosure
UDI Un-weighted Disclosure Index
19
Abstract
The present study on ‘Accounting and Reporting Practices of Islamic Banks in
Bangladesh’ has been conducted to evaluate the accounting and reporting practices of the
Islamic banks in Bangladesh. Accounting and reporting practices differs based on the
rules and regulations, environment, culture, activities, profit orientations, etc. As the
activities and rules and regulations of Islamic banking differ from traditional interest
based banking, therefore, an attempt was initiated to examine the accounting and
reporting practices of the Islamic banks in Bangladesh.
The objectives of the study were to describe the legal framework regarding accounting
and reporting of the banking sector in Bangladesh; to examine the present status of
accounting and reporting practices in the Islamic banks in Bangladesh; to assess whether
there is any significant impact of industry attributes on the volume of accounting and
reporting information of Islamic banks; to evaluate the quality of the reporting of the
existing accounting and reporting practices in the Islamic banks; to find out the problems
of the existing accounting practices in the Islamic banks and to provide suggestions to
improve the accounting practices in Islamic banks.
All the seven full fledged Islamic banks, that is, 100% population was taken as the
sample and both primary and secondary data were used for the study. To examine the
legal framework of accounting and reporting, the Companies Act, 1994, the Banking
Companies Act, 1991, the Securities and Exchange Rules, 1987, the Securities and
Exchange Ordinance, 1969, Income Tax Ordinance, 1984, Accounting and Auditing
Organization for Islamic Financial Institutions (AAOIFI) Standards, Islamic Financial
Service Board (IFSB) Standards, International Accounting Standards and International
Financial Reporting Standards (IAS/IFRS), SEC Notifications, Bangladesh Bank
Circulars (BRPD Circular), the Nationalization Orders of 1972 & 1973, and Listing
Requirements of DSE and CSE, etc. were evaluated. It is observed that the legal and
regulatory frameworks are complicated and compared with conventional banks Islamic
banks requires complying more rules and regulations because different regulatory bodies
imposed different laws, rules and regulations for compliance. These rules and regulations
in some of the cases are old, contradictory and overlapping with each other.
20
To examine the present status of accounting and reporting practices in the Islamic banks
in Bangladesh, an un-weighted disclosure index (UDI) consisting of 144 items of
information that are expected to report in the annual reports of the Islamic banks was
constructed for the period from 2006 to 2010. These 144 items were divided into nine
categories and examined their reporting status in the annual reports of the sample banks
for the sample period. Un-weighted disclosure index (UDI) has been constructed by
aggregating the number of items reported in the annual reports using a dichotomous
approach where a bank awarded ‘1’ for reporting an item and ‘0’ for not reporting an
item in the annual reports. It is found that disclosure is the highest in case of sample # 1
(IBBL) and least in case of sample # 7 (FSIBL). These findings justify the Certificate of
Appreciation for the published accounts of 2001, Certificate of Merit for 2008 and third
prize for the published accounts of 2010 of IBBL. Overall disclosure might be judged
relatively good in all sample banks as the highest score in sample #1 is 89.62% and
lowest score in sample # 7 is 67.07% (table 6.1) of the maximum attainable of 144 under
the mandatory and voluntary elements of the index and no bank disclosed less than 65%.
Sample wise paired sample t test showed that there is significant difference in disclosure
score among the sample banks. Year wise disclosure showed that the highest score in the
year 2010 is 89.62% and lowest score in the year 2006 & 2007 is 67.07% (table-6.2).
Year wise paired sample t test showed that there is no variation in year to year disclosure
score among sample banks. The trend line showed (graph-6.2) that though it is slow but
over the year, there is an increasing trend in volume of disclosure by the sample Islamic
banks in Bangladesh.
To assess impact of industry attributes on the volume of accounting and reporting
information of Islamic banks, a multiple linear regression model was used. The industry
attributes considered in the study are size measured by total assets (TA), gross revenue
(GR), and number of branches (NOB), age of the bank (AGE), profitability measured by
EPS, ROA, ROI, and net profit margin (NPM), investment deposit ratio (IDR), capital
adequacy ratio (CAR), and debt equity ratio (DER). From the analysis, it is found that the
volume of disclosure is related with some of the industry attributes. As per the study,
only three variables representing the size of the banks, that is, TA, GR, and NOB are
significantly determining the volume of disclosure at 5% level in each individual year
21
and in the study period as a whole. At 10% level of significant EPS is also affecting the
volume of disclosure in 2009 and 2010. If consider of the whole study period from year
2006 to 2010, the age of the Islamic banks are also found to be significantly correlated
with the level of disclosure. The other variables were found insignificant in determining
the volume of information disclosure in annual reports.
To evaluate the quality of the reporting of the existing accounting and reporting practices
in the Islamic banks, a questionnaire survey was conducted on Professional Accountants
(P.A.), Accounting Professors (A.P.), Bank Executives (B.E.), Stock Brokers (S.B.) and
Investors (I.V.). As per thumb rule, for each question there should have 5 samples for
which reason 150 sample were being taken here for about 30 questions. But responses
from Professional Accountants (P.A.) were 19, Accounting Professors (A.P.) were 21,
Bank Executives (B.E.) were 30, Stock Brokers (S.B.) were 22 and Investors (I.V.) were
29. Average response rate was 80.67%.
Most of the respondents think that there is no difference in comparative reliability of the
information provided by Islamic banks and conventional banks but few professional
accountants and stock brokers think that the information provided by conventional banks
are more reliable than that of Islamic banks. Maximum respondents also opined that in
maintaining quality of disclosure, Islamic banks in Bangladesh could maintain high
quality in case of timeliness, faithfulness, usefulness, relevance and reliability of
information and could maintain moderate quality in case of consistency, comparability,
effectiveness, understandability and verifiability of information. But maximum
respondents thought that Islamic banks in Bangladesh could not maintain high quality of
information in case of predictive value, feedback value, adequacy, neutrality and
effectiveness of accounting information system. It was also found from the opinion
survey that Islamic banks highly comply BAS, BFRS, Companies Act, banking
Companies Act, SEC rules, etc. in preparing books of accounts and also comply rules of
appointment of auditors and quality of audit in case of reporting of the information to its
stakeholders. But the opinion of the respondents is not satisfactory and indifferent
regarding complying AAOIFI financial accounting standards.
22
The study provided some recommendations for improving the accounting and reporting
practices of the Islamic banks in Bangladesh. The study recommendations: to develop a
single set of comprehensive rules and regulations instead of a number of laws so that the
Islamic banking companies can easily comply and to have a single regulatory body under
which Islamic banks will maintain their accounting and reporting activities; to conduct
more research for development of a single set of comprehensive rules and regulations; to
give more emphasize on AAOIFI and IFSB disclosure requirements in formulation of
disclosure requirements for Islamic banks and to disclose more information maintaining
quality in all areas in the annual reports by the Islamic banks so that the users can get the
necessary information.
The findings of the study are not applicable for all types of organizations and for all time.
For using the findings of the present study, the limitations of the study are to be retained
in mind. The major limitations include: the study considered only full fledged Islamic
banks in Bangladesh, considered the annual reports of five years only, only 144 items
considered for construction of disclosure index, both mandatory and voluntary
information in forming the disclosure index but did not classify them for making analysis
or comparison.
23
1.1 Background:
Accounting is necessary not only for a person but also for all sorts of business,
service oriented and non-profit organizations. It is impossible to run, direct, control
any organization without accounting information. So, accounting is an integral part of
all organizations.
Accounting is the process of identifying, recording, classifying, interpreting and

communicating economic events to permit users to make informed decisions (AAA,
1966). Initial accounting practices were directed towards the needs of information of
the shareholders and the creditors. According to SFAC No. 1, now the potential users
of the accounting reports are owners, lenders, suppliers, potential investors and
creditors, employees, management, directors, customers, financial analysts and
advisors, brokers, underwriters, stock exchanges, lawyers, economists, taxing
authorities, regulatory authorities, legislators, financial press and reporting agencies,
labor unions, trade associations, business researchers, teachers, students and public
(Hye & Rahman, 1991).
Accounting is an important way of presenting the reality of an organization. But the

presentation or practices of accounting differ from country to country and
organization to organization due to educational, sociological, economic, political,
legal, technological factors and organizational typology (Hye, 1988). In business
organization, the accounting practices are influenced by its profit motive while in the
non-profit organization the same is affected by its service orientation (Hossain &
Rashid, 1992). Ideological differences may also influence accounting practices and
Hossain (2012) stated that it is quite natural that the financial statements of Islamic
banks will be different from conventional banks.
Ideologically the Islamic organizations are different from the interest-based

traditional organizations. Islamic organizations set their objectives and perform their
activities within the limits of Islamic Shari’ah. The most important principles of
Islamic organization are the scriptural restriction against riba’ in all forms and
intention. The holy Qur’an strictly, absolutely and clearly prohibited riba’ in the
24
verses 278 & 279 of Surah Al-Baqarah: “O you who believe! Fear Allah and give up
what remains ( due to you) from riba, if you are indeed believers,” and “If you do not
do it, take notice of war from Allah and His Messenger, but if you return back, you
shall have your capital sums. Deal not unjustly and you shall not be dealt with
unjustly.” Therefore, the Islamic organizations are different in objectives, operating
activities, environments and cultures which require different information for their
control to achieve their specific Islamic objectives and therefore, a different (Islamic)
accounting system is required to be followed to provide the necessary information to
Muslim societies (Khan, 1994).
1.2 Rational of the study:

Colonial regime resulted in interest-based financial institutions, alien business laws,
accounting practices and limited liability private artificial persons being introduced
into different Muslim countries. But these institutions, laws, and accounting practices
are questionable because these could not ensure the efficient allocation of resources
for smooth economic growth and social welfare. After the experiments of the
difficulties of socialism, communism and capitalism, the Muslims are going to back
to its roots to solve its problems. Therefore, large number of Islamic organizations is
being established. At present, more than 300 Islamic banks and financial institutions
are working successfully in 50 countries with more than 10,000 branches (Gani,
2005). The study of Malik, Malik and Mustafa (2011) stated that there are currently
more than 475 Islamic financial institutions spread over 75 countries and well over
250 mutual funds that comply with Islamic principles. Over the last decade, this
industry has experienced growth rates of 10-15 percent per annum—a trend that is
expected to continue (Sole, 2007).
The Islamic organizations are different from interest-based organizations in respect of

their objectives, activities, rules and regulations, cultures and also in environments
which affect the accounting practices. Same transactions are differently recognized in
these two different organizations. Islamic organizations are governed by its respective
Act, Rules, and Regulations as like as interest-based organizations and in addition to
these Islamic organizations are required to abide by Islamic Shari’ah. If a proper
25
disclosure with regard to the financial reporting, the underlying Shari’ah principles
and the accounting methods adopted is not made, the information contained in the
financial statement will not be useful for a comparison of the performance of different
Islamic banks (Hamat, 1994).
In order to present adequate, reliable, relevant, and comparable information to users

of the financial statements of Islamic organizations, they should have some specific
accounting and auditing standards to be followed. The Accounting and Auditing
Organization for Islamic Financial Institutions (AAOIFI), a private sector standard-
setting body in Bahrain, was established by some practicing accountants and Shari’ah
scholars for an aim to help setting International Accounting Standards based on
Shari’ah principles for Islamic banks and Islamic Institutions.
Considering the present situations of the Islamic organizations, the researcher is

induced to examine and justify the present accounting practices, suitability of the
conventional accounting to these organizations, and to identify the problems
encountered by these organizations regarding accounting practices and to provide
suggestions to solve the problems and improve the accounting practices.
1.3 Objectives of the Study:

The main objective of the study is to evaluate the accounting and reporting practices
of some selected Islamic banks in Bangladesh. To achieve this main objective, the
study covers the following specific objectives:-
i) To describe the legal framework regarding accounting and reporting of the
banking sector in Bangladesh.
ii) To examine the present status of accounting and reporting practices in the
Islamic banks in Bangladesh.
iii) To assess whether there is any significant impact of industry attributes on
the volume of accounting and reporting information of Islamic banks.
iv) To evaluate the quality of the reporting of the existing accounting and
reporting practices in the Islamic banks.
26
v) To find out the problems of the existing accounting and reporting practices
of the Islamic banks.
vi) To provide suggestions to improve the accounting and reporting practices of
the sample Islamic banks.
1.4 Scope of the Study

The present study is an empirical one in evaluation of the accounting and reporting
practices of Islamic banks in Bangladesh. This study is limited to the full fledged Islamic
banks operating in Bangladesh only. The whole population, that is, all 7 Islamic banks
consisting of Islami Bank Bangladesh Limited, Al-Arafah Islami Bank Limited, Social
Islami Bank Limited, Export Import Bank of Bangladesh Limited, Shahjalal Islami Bank
Limited and ICB Islami Bank Limited, was considered for the study. A period of five
years starting from 2006 to 2010 was taken into consideration because before that period
all the Islamic banks were not enlisted in stock exchanges and were not required to
maintain their books of account as per the specifications of the regulatory bodies. Both
the primary and secondary data were used for the study.
1.5 Limitations of the Study

The present research has some limitations which are to be considered in case of using the
findings of the study. The mentionable limitations are as below:
a) The study considered only Islamic banks but the results may be different if whole
banking sector or other industries are considered.
b) The study considered the annual reports of five years only but study might be
conducted considering annual reports of longer period.
c) The study concentrates only 144 items of information disclosure in evaluating the
volume of reporting but findings may be different if more or less items included
in the disclosure index.
d) The study considered both mandatory and voluntary information in forming the
disclosure index but do not classify them for making analysis or comparison of
the results.
e) The study compared the disclosure score of the Islamic banks with few selected
attributes of the Islamic banks but more attributes like size of audit firm,
27
ownership structure, liquidity, etc. also could be considered for more
comprehensive results.
f) The study considered only few classes and limited number of respondents for the
survey but quality of disclosure could be evaluated if more respondent class like
executives of regulatory bodies, research students, etc. and more number of
respondents could be considered.
1.6. An Overview of Sample Islamic Banks

1.6.1 Islami Bank Bangladesh Limited (IBBL)
Islami Bank Bangladesh Ltd., which was incorporated on 14th March, 1983, went into
operation on 30th March, 1983 and introduced a full package of banking services in
August 1983, Islami Bank Bangladesh Limited is considered to be first interest-bank in
South East Asia. IBBL is a public limited company with limited liability under the
companies Act, 1913, it is a joint venture multinational bank with sixty four percent of
equity being contributed by the foreign sources. Regarding shareholding structure of the
bank, the local shareholders hold shares in the ratio of thirty six to sixty four. On 31st
December, 2010 the number of its shareholders stood at 58,923, its shares are quoted in
the two stock markets of the country namely Dhaka Stock Exchange (DSE) and
Chittagong Stock Exchange (CSE). Authorized capital of this bank is Tk. 10,000.00
million. At the end of 31st December, 2010 IBBL has a paid-up capital of Taka 7,413.12
million and Reserve Fund to Taka 16,081.14 million. The bank opened 251 branches
where 10,349 employees are working. This bank is the largest private sector bank in
Bangladesh.
The bank is managed by 16-member Board of Directors elected by the shareholders and a
12-member Management Committee consisting of the top Executives of the bank also
oversee the day-to-day function of the bank. A representative from the Shariàh Council
also take part in the above committee. The bank has also a 12-member Shariàh council
consisting of Fuquah, Islamic Economists and a Lawyer. The council gives decision on
Islamic issues, which are generally followed in the bank. The Council conducts audits the
operation of bank branches each year on selective basis and put forward report identify
the deviations and suggestions for purification of the banking transactions.
28
1.6.2 ICB Islami Bank Limited
The second Islamic bank of the country, Al-Baraka Bank Bangladesh Limited
commenced banking business as a scheduled Islamic bank on May, 20, 1987. The bank is
also incorporated under the companies Act of 1913 with registered office in Dhaka it is a
joint venture bank of Al-Baraka Investment and Development Company (ABIDCO) of
Jeddah, Saudi Arabia, a renowned financial and business house in the world, Islamic
Development Bank, a group of eminent Bangladeshi entrepreneurs and the government of
Bangladesh. On 19th April, 2003, the bank changed its name from Al-Baraka Bank
Bangladesh Limited to The Oriental Bank limited and again on 18th May, 2008 changed
its name to ICB Islami Bank Limited. The authorized capital of the bank is Tk.15,000.00
million dividend into 1,500 million ordinary shares of Taka 10 each. The paid up capital
of the bank now stands at Taka 6,647.023 million shares by 22,204 shareholders. The
bank has been conducting its all banking operations with 34 branches spreader all over
the country. The bank is managed by a 5-member board of Directs elected by the
Shareholders. The day-to-day affairs of the bank are managed by an Executive Council of
5 Directors. Like other Islamic banks, it has a 5-Shariàh Council which gives decision on
Shariàh issues.
1. 6.3 Al-Arafah Islami Bank Limited:

Al-Arafah Islami Bank Limited was incorporated in June 18, 1995 and started operation
as 3rd Islamic bank in the private sector banking in Bangladesh from September 27,
1995. The bank is having an Authorized capital of Tk. 5,000 million and paid up capital
of Tk. 4,677.28 million at the end of December 31st, 2010. The shares of the bank hold
by 49,386 shareholders. It renders all types of commercial banking services within the
stipulation laid down by banking Companies Act 1991 and directives as received from
the Bangladesh Bank from time to time. The bank is managed by 21-member Board of
Directors it has a 7-member Shariàh council consisting of Fuqaha, lawyers and Islamic
Economists. The Council gives its advice in order to ensure that the bank does not
involve any element which is not approved by Islamic Shariàh. By 31st December, 2010,
Al-Arafah Islami Bank Ltd. opened 78 branches all within the country where 1,711
employees are working.
29
1.6.4 Social Islami Bank Limited (SIBL)
Social Islami bank Limited is a fourth Islamic bank in Bangladesh. It was incorporated on
5th July, 1995 and launched its banking operations of 22nd November, 1995 as Social
Investment Bank Limited and changed its name to the present one on August 2009. It
nature it is a venture bank of some renowned Islamic organizations of the world and the
Government of Bangladesh. At the Operational level, the bank is committed to provide a
linkage among the three sectors of the real economy: a) formal sector; b) non-formal
sector; and c) Islamic voluntary sector. The authorized share capital of the bank is Taka
10,000.00 million and. at the end of December 2010 the Paid-up capital of the bank stood
at Taka 2,987.81 million. The bank is managed by an 18-member Board of Directors and
the bank has also a 9-member Shariàh Council consisting of Fuquah, Islamic Economist
and lawyer. The Council gives decision on Islamic issues which are generally followed in
the bank. By December 2010 Social Islami Bank has opened 64 branches where 1,252
employees are working.
1.6.5 EXIM Bank of Bangladesh Limited

EXIM Bank of Bangladesh Limited was incorporated as a public limited company on
June 2, 1999, and started its business through inauguration of first branch on August 3,
1999 as Bengal Export Import Bank limited on 3 August, 1999 and was renamed as
present on 16 November of the same year. EXIM Bank started functioning as a
commercial bank and on July, 2004 it switched over from conventional banking to a
Shariàh based Islami Banking system. The authorized capital of the bank is Tk. 1,000.00
Crore and paid-up capital is 683.22 Crore. On 31st December, 2010 the number of its
shareholders stood at 18,771, its shares are quoted in the two stock markets of the country
namely Dhaka Stock Exchange (DSE) and Chittagong Stock Exchange (CSE). The bank
opened 30 branches where and 1,020 employees are working as on 31st December 2010.
EXIM bank has 24-member Board of Directors and an 11-member Shari’ah supervisory
committee headed by the Khatib of National Mosque-Baitul Mukarram supervising and
maintaining the Shariàh compliance of the bank.
30
1.6.6 Shahjalal Islami Bank Limited
Shahjalal Islami Bank Limited (SJIBL) is a public limited company incorporated in
Bangladesh on 1st April, 2001 under the companies Act 1994 and listed in DSE and CSE
started business on 10th May, 2001. The authorized capital of the bank is Tk. 6,000.00
million and paid-up capital is Tk. Tk. 3,425.12 million. The bank opened 63 branches
where and 1,671 employees are working as on 31st December 2010. On 31st December,
2010 the number of its shareholders stood at 54,549. SJIBL has 23–member Board of
Directors and a 9-member Shariàh council consists of Shariàh scholars, lawyers and
expert in the finance and economic fields who has been maintaining the Shariàh of the
activities of the bank.
1.6.7 First Security Islami Bank Limited

First Security Bank Limited (FSBL) is one of the third generation private banks in
Bangladesh. FSBL commenced its commercial operations October 1999 with authorized
capital BDT 1,500 million and paid up capital BDT 200 million. Though the bank started
its operations as a conventional bank, it has converted itself into Shariàh based Islamic
bank in 2008. The authorized and paid up capital of the bank at the end of 31st December,
2010 are Tk. 4,600 million and Tk. 3,036 million respectively. The bank was enlisted in
DSE and CSE on 22 September, 2008 and total number of shareholders on 31st
December, 2010 stood at 82,230. The bank opened 66 branches where 929 employees are
working up to 31st December, 2010. FSIBL has 15–member Board of Directors and a 5-
member Shariàh council consists of Shariàh scholars, lawyers and expert in the finance
and economic fields who has been maintaining the Shariàh of the activities of the bank.
Table No. 1.1: Islamic banking industry in Bangladesh at the end of 2010
TA GR NOB AGE EPS ROA ROI IDR CAR
IBBL 330586.12 30128.90 251 28 6.02 1.47 1.62 90.17 11.06
AIBL 74005.01 7522.25 78 16 4.14 2.45 3.26 93.43 14.49
SIBL 55168.54 5068.10 64 16 2.15 1.17 1.62 81.78 9.33
EXIM 113070.98 13723.95 59 12 5.35 3.54 3.50 98.26 9.80
SJIBL 78800.00 9509.00 63 10 6.05 3.01 3.37 97.58 10.08
FSIB 63619.79 6211.03 66 12 2.33 1.89 1.05 92.51 9.09
ICB 18641.60 781.65 34 24 -2.04 -7.29 -9.77 102.00 36.63
Source: Developed by the author
31
1.7 Structure of the Thesis
The thesis is divided into nine chapters. Chapter one is about background, rationale of the
study, objectives of the study, scope of the study, limitations of the study, overview of the
sample Islamic banks and structure of the thesis. Chapter two focuses on methodology of
the study outlining introduction, selection of Islamic banks, selection of period, types of
data, collection of secondary data, collection of primary data, preparation of
questionnaire, primary data collection method, selection of sample respondents, selection
of reporting index, tools used for analysis, items included in the disclosure index, and
hypothesis of the study. Chapter three deals with the relevant literature review. Chapter
four focuses on the context of the study detailing an overview on Bangladesh, banking
history in Bangladesh, Islamic banking—the foundations, Islamic banking—the historical
context, Islamic banking- Bangladesh context and finally banking companies in
Bangladesh. Chapter five discusses the conceptual and legal framework of accounting
and reporting in Bangladesh and chapter six evaluates disclosure in annual reports and
accounts of Islamic banks in Bangladesh. Chapter seven tries to justify whether there is
any association between industry attributes and volume of reporting information in
annual reports of the Islamic banks in Bangladesh. Chapter eight analyze of the results of
the questionnaire survey regarding the quality of accounting and reporting practices of
Islamic banks in Bangladesh. Finally, chapter nine provides the summary of the thesis
with major findings, recommendations of the study, contribution of the study, and
direction for further research.
1.8 Conclusion
This introductory chapter delineates the introductory aspects of the study. This chapter
discusses the background, rationale of the study, objectives of the study, scope of the
study, limitations of the study, overview of the sample banks, and structure of the thesis.
The objective of this chapter is to provide its readers an overview of the study. The next
chapter discusses research design and methodology of the study.
32
2.1 Introduction
Methodology describes a novel method which may be intended for use in research or
practical settings (or both). This chapter considers the research methodology of the
present study. The aims of this chapter are to set up the foundation of the statistical
analysis for the study. The main sources of data for the study were the annual reports of
the Islamic banking companies in Bangladesh. The present study considered the annual
reports of the sample companies for the year from 2006-2010. All the Islamic banking
companies were considered for the study. The present study adopted the disclosure index
method based on content analysis for evaluation of the level of disclosure of the sample
Islamic banks. A list of items that might be disclosed by the Islamic banks in their annual
reports was taken as the base and gave the banks a score based on the number of
disclosures actually made.
2.2 Selection of Islamic Banks

There are seven full fledged Islamic banks listed in the stock exchanges in Bangladesh.
All the seven listed Islamic banking companies were taken as the sample for the study,
that is, the sample covered 100% population of the field. The Islamic banks under study
are as given below:
Table No. 2.1: Showing Selected Sample for the study

Sample No. Name of Islamic Banks Year of
Incorporation
Sample-1 Islami Bank Bangladesh Limited 1983
Sample-2 Al-Arafah Islami Bank Limited 1995
Sample-3 Social Islami Bank Limited 1995
Sample-4 Export Import Bank of Bangladesh Limited 1999
Sample-5 Shahjalal Islami Bank Limited 2001
Sample-6 ICB Islami Bank Limited 1987
Sample-7 First Security Islami bank Limited 1999
33
As there are some differences in accounting and reporting practices of traditional and
Islamic banks, hence the listed traditional banks were not taken as sample of the present
study.
2.3 Selection of Period

At the beginning of the study, it was decided that the study would cover the annual
reports of the listed full fledged Islamic banks in Bangladesh for five years. Because
annual reports of five years were supposed to reflect the accounting and reporting
practices of the sample Islamic banks. The analysis of annual reports was performed in
2011 when the latest annual reports of 2010 were available. Therefore, the study covered
the period of 2006-2010.
2.4 Types of Data

The present study was based on both secondary and primary data. The important sources
of secondary data were the annual reports of the sample Islamic banks in Bangladesh,
Acts, rules, regulations, standards and Ordinances governing accounting and reporting,
and research papers, etc. The source of primary data was the opinion survey of different
respondent groups who are related in the accounting and reporting of the Islamic banks in
Bangladesh.
2.5 Collection of Secondary Data

The important sources of secondary data includes annual reports of the sample Islamic
banks, Companies Act 1994, Banking companies Act 1991, Securities and Exchange
Commission Ordinance 1969, Securities and Exchange Rules 1987, Income Tax
Ordinance 1984, IAS/BAS or IFRSS/BFRS, Listing Regulations of DSE & CSE,
AAOIFI standards, IFSB standards and relevant research papers. Hard copy of the
Annual reports of 7 Islamic banks for 5 years were collected from Dhaka and soft copy of
all other secondary data were collected from the websites of the respective organizations.
34
2.6 Collection of Primary Data
The source of primary data was the opinion survey of the different groups of users of the
reports of the Islamic banks. Procedures of questionnaire preparation, methods of data
collection and selection of sample respondents are discussed below:
2.6.1 Preparation of Questionnaire

On the basis of literature review, a questionnaire was prepared in consultation with few
selected accounting professors of different universities, prominent academicians,
researchers and bankers. After getting the opinion from the experts, the questionnaire was
finalized. The final questionnaire of the study included a covering letter and background
of the study stating the purpose of the study so that the respondents could understand its
importance and became unbiased in responding to the questionnaire. The questionnaire
used for the study is presented in Appendix # 5.
The questionnaire used was divided into two parts, PART-I, and PART-II. PART-I of the
questionnaire included 10 questions regarding name, position, organization, job
experience, educational qualification, professional education, accounting training or
experience, and age of the respondents. PART-II included 27 questions regarding uses of
annual reports, comparative reliability of Islamic banking reports, compliance of different
laws, rules, regulations and standards, quality of reporting, effectiveness of AIS,
appointment of auditors, quality of audit and suggestions regarding improving accounting
and reporting practices of the Islamic banks.
2.6.2 Primary Data Collection Method

After preparation of the questionnaire, the researcher started questionnaire survey using
direct interview method at Dhaka and Chittagong. The direct interview method was used
to reduce the non-response rate and for drawing conclusion regarding respondents’
inference and attitudes.
35
2.6.3 Selection of Sample Respondents
The questionnaire survey of the study intended a target sample of 150 in total consisting
of 30 professional accountants, 30 accounting professors, 30 bank executives from
different Islamic banks, 30 stock brokers and 30 investors in Islamic banking shares. As
per thumb rule, for each question there should have 5 samples for which reason 150
sample were taken for about 30 questions. Total 121 respondents gave their valuable
response, that is, the overall achievement of target of collecting questionnaire was
80.67% and this is good compared to that of other similar studies.
2.7 Selection of Reporting Index

Reporting or disclosure index approach has been using as an important technique of
measuring the level of information disclosed and testing hypothesis of research during
last four decades. There are two reporting indices-weighted and un-weighted index used
in different disclosure study. Both the technique provides almost similar results (Chow
and Wong-Boren, 1987) and therefore, the un-weighted reporting index was used in the
present study. This approach was first used by Cerf (1961) and also has been adopted and
used in several studies (see Singhvi & Desai, 1971; Buzby, 1974; Barrett, 1976; Chow
and Wong-Boren, 1987; Wallace, 1988; Cooke, 1989; Raffournier, 1995; Botosan, 1997;
Owusu-Ansah, 1998). The approach has several advantages. First, it is capable of tapping
differences in level of financial reporting by companies. Second, it enables the rank-
ordering of sampled companies relative to each other. Third, the scores on an index can
be treated as a parametric or non-parametric data set, which increases the power of
analysis. Despite this widespread usage, the technique is susceptible to bias at the scoring
stage.
2.8 Tools used for Analysis

The study used different statistical tools like average, standard deviation, coefficient of
variation, correlation, regression, t-test and χ2 test for analyzing the data. In the un-
weighted disclosure index, disclosure of individual items has been treated as a
dichotomous variable. In this case, the only concern is whether or not an Islamic bank
reports an item of information in its annual report. If an Islamic bank reported an item of
36
information in its annual report, it was awarded ‘1’ and if not reported, it was awarded
‘0’. The disclosure model for the un-weighted disclosure thus measured the total
disclosure (TD) score for an Islamic bank as additive as follows:
n
TD = ∑ di
i =1
Where, d = 1 if the item di is disclosed
0 if the item di is not disclosed
n = number of items
2.9 Items included in the Disclosure Index

Reporting of information in the annual reports basically depends on the legal
requirements and the needs of the information to the users of those reports. Though the
legal requirements are same for all but the requirements of the users differ significantly.
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
annual report. Because 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 (Hossain,
1998).
The items of the disclosure index in the present study were included following the study
of Ahmed, 2009; Hossain, 1998; Ahmed and Nicholls 1994; and Parry and Groves, 1990.
For mandatory items, the study considered the Acts, Rules, Regulations, Ordinance and
BAS/ BFRS applicable in Bangladesh governing reporting of banking companies in
Bangladesh. In addition, the index included the aspect of Zakat disclosure and other
voluntary and mandatory items of information for the Islamic banks. The disclosure
index considered both qualitative and quantitative items reported in the annual reports of
the Islamic banks. Though a disclosure index developed by one researcher can be used by
other researcher as argued by Parry and Groves, 1990 stating that their model was
originally developed by Singvi (1967) applied in Indian context and they used it in
Bangladesh context.
37
2.10 Hypothesis of the Study
On the basis of the literature review, the following hypotheses have been taken to be
tested for the study:
H0: There is no significance difference among the opinions of the respondents of the
questionnaire survey on the users of Islamic banking reports.
H0: There is no significant variation in disclosure score among the Islamic banks and
disclosure score of the Islamic banks over the years.
H0: There is no significant relationship between a number of selected industry attributes
and the level of disclosure of Islamic banks in Bangladesh.
2.11 Conclusion
This chapter reveals the detailed methodology used for the study from the very beginning
to the completion of the study. Here we provided arguments why we followed a
particular method for the purpose of the study. The reasons for selection of these Islamic
banks, selection of these period, types of data used, ways of collection of secondary data,
methods of collection of primary data, basis of preparation of questionnaire, data
collection method, selection of these sample respondents, selection of reporting index,
tools used for analysis, items included in the disclosure index, and hypothesis of the study
were discussed here in detail. The next chapter contains relevant literature review.
38
3.1 Introduction
This chapter reviews existing literature which is foundation of any research since
literature review gives a scope for reviewing the existing stock of knowledge and
information relevant to the proposed research. By reviewing available literature, the
researcher can identify the research gap in the proposed field of study. The existing
literature also guides the researcher in designing the research problem and justifying the
research findings. Though reporting of company financial information in this
subcontinent was started on the basis of Statutory Act 1957 but very few studies were
conducted on accounting and reporting practices in banking sector in Bangladesh. So far
my knowledge goes, out of the studies conducted on banking sector, no detailed study on
accounting and reporting practices was performed on Islamic banking sector in
Bangladesh. The following sections provide the review of selected literature that focus on
accounting and reporting practices in annual reports from Bangladesh and abroad
classifying them into following:
Literature Review regarding Financial Reporting in General
Literature Review regarding Conventional Banks and Financial Institutions
Literature Review regarding Financial Reporting of Islamic Banks
3.2 Literature Review regarding Financial Reporting in General

Iyoha (2011) in his thesis on ‘State Agencies, Industry Regulations and the Quality of
Accounting Practice in Nigeria’ evaluated 61 Nigerian industries including 17 banking,
16 insurance, 5 conglomerates, 9 petroleum marketing, 3 agriculture, 7 food/beverage
and 4 health industries for evaluation of the quality of accounting practice for which he
collected opinion from a total of 154 respondents consisting 43 compilers and 111 users
of information. Iyoha, F.O., (2011) found that there is a significant difference in the
quality of accounting practice among industrial sectors in Nigeria in terms of relevance
and reliability. In terms of relevance which deals with timeliness of financial reporting,
the banking sector was found to be more compliant than other sectors in the Nigerian
economy. In terms of reliability of accounting practice, the banking sector was found to
be less transparent in financial reporting even though other industrial sectors were also
involved in earnings manipulation.
39
Hossain (2010) in the study on ‘Financial Reporting Practices of Listed Pharmaceuticals
Companied in Bangladesh’ attempted to evaluate the disclosure level and perceptions of
the users of the financial reports of the companies. The author determined the extent of
disclosure on the basis of disclosure index approach. He calculated the un-weighted
disclosure index (UDI) based on 144 score items classified into 9 separate heads. In this
analysis, he found a difference in extent of disclosure among the samples though the
regulatory roots are same for all. conducted a survey on the perceptions of 140
respondents including 60 users of financial statements (investors), 48 managers of the
sample companies, 8 employees of regulatory agencies, 12 professional accountants and
12 accounts preparers regarding the qualitative characteristics of the accounting
information. Hossain, M.S., (2010) found that perceptions among the corporate
managers, regulators and professional accountants are more or less similar and their
satisfaction level is high but investors’ perceptions is at low level. He found and
commented that the perceptions of the sample investors vary in a significant manner from
other users.
Mutawaa and Hewaidy (2010), in the paper on ‘Disclosure Level and Compliance with
IFRSs: An Empirical Investigation of Kuwaiti Companies’ empirically investigated the
extent of compliance of Kuwaiti listed companies with IAS/IFRSs disclosure
requirements, and provides evidence of the factors associated with the level of
compliance. The factors examined are: company size, profitability, leverage, liquidity,
type of industry, type of auditor, and company age. For this purpose a disclosure index is
developed including 101 disclosure items representing 12 IASs. The annual reports of a
sample of 48 non-financial companies carefully scrutinized against the disclosure index.
The findings of the study indicate that the overall compliance level for the sampled
companies averages 69% of the disclosures required by the standards tested. Regression
results indicate that only company size and type of industry have positive association
with IAS-required disclosures and their coefficients are significantly different from zero.
Other explanatory variables are found statistically insignificant.
Hossain and Hammami (2009), in the study on ‘Voluntary Disclosure in the Annual
Reports of an Emerging Country: The Case of Qatar’ examined empirically the
40
determinants of only voluntary disclosure in the annual reports of 25 (banking and
financial sector 7; insurance sector 3; industry sector 3; and service sector 12) listed firms
of Doha Securities Market (DSM) in Qatar forming approximately 86% of the total firms
incorporated in DSM as the total number of companies listed on the Doha Securities
Market (DSM) is 42 as of 31st December 2008. Annual reports for the year 2007 have
been used for the study. The study also reported the results of the association between
company-specific characteristics and voluntary disclosure of the sample companies. A
disclosure checklist consisting of 44 voluntary items of information was developed and
statistical analysis is performed using multiple regression analysis. The findings indicate
that age, size, complexity, and assets-in-place are significant and other variable, that is,
profitability is insignificant in explaining the level of voluntary disclosure. However, this
paper has contributed to the academic literature that firms in the Middle East provide
voluntary corporate information which builds a confidence to the investors in general and
Qatar in particular.
Sutthachai and Cooke (2009), in their article on ‘An Analysis of Thai Financial
Reporting Practices and the Impact of the 1997 Economic Crisis’ focused on listed Thai
companies between 1993 and 2002 to ascertain whether the 1997 economic crisis, which
were refer to as an economic disturbance, had an impact on financial reporting practices.
Both changes in measurement and disclosure practices were considered and the period of
study is divided into three sub-periods: the pre-economic crisis period (1993–96), the
economic crisis period (1996–98) and the post-economic crisis period (1998–2002). A
sample of 106 companies grouped into five industries: agribusiness (5 per cent), heavy
industrial (29 per cent), consumer goods (29 per cent), services (30 per cent) and other
sectors (7 per cent) and a disclosure items list of 217 items of which 170 were mandatory
and 47 were voluntary considered for development of disclosure index. Then the
association between independent variables size (total sales), leverage ratio, profitability
ratio (ROA), ownership, managerial ownership, auditor, agribusiness, industry type,
consumer goods, service sector and others were compared with disclosure volume.
The results showed that there were significant increases in disclosure levels over the ten
years but no substantial changes in measurement methods. The regression results showed
41
that 1998 and 2002 have higher disclosure levels than 1996. Apart from the year variable,
the other variables significantly associated with disclosure are leverage, ownership
concentration and managerial ownership. The leverage ratio has a positive relationship,
suggesting the higher the ratio the higher the disclosure level. On the other hand, the
ownership concentration and managerial ownership have negative associations,
indicating that the higher the concentration in ownership concentration and managerial
ownership the lower the extent of disclosure. It is noticeable that the size variable is not
statistically significant.
Agca and Onder (2007), in the study on ‘Voluntary Disclosure in Turkey: A Study on
Firms Listed in Istanbul Stock Exchange (ISE)’ attempted to reveal voluntary disclosure
levels and factors affecting voluntary disclosure levels for Turkish firms listed in Istanbul
Stock Exchange in 2003. The study contained 51 firms, 33% of the 165, from various
sectors excluding banking and insurance. In this study firstly they checked the disclosure
level for sectoral groups, namely Food, Construction and the Other (firms in the print &
publishing, electronics and technology and logistics and transport sectors). The “Other”
group has the highest level of voluntary disclosure in terms of Strategic Information and
Non-financial information, while the “Food” group has the highest level of voluntary
disclosure in terms of Financial Information and Total Information. Secondly, they used
Ordinary Least Squares (OLS) estimation technique to check the impacts of Firm Size,
Leverage, Auditor, Ownership Structure, Profitability, and Multi-nationality on the
voluntary disclosure. According to estimated results, Profitability and Firm Size variables
are significant for the “Strategic Info” model; Auditor and Firm Size variables are
significant for the “Financial Info” model; leverage variable is significant for the “Non-
Financial Info” model; and Auditor, Profitability, and Firm Size variables are significant
for the “Total Disclosure” model. In light of the findings of this study, they stated that,
with the acceptance of mandatory disclosure of information, the firms that are listed in
the Istanbul Stock Exchange are reluctant to voluntarily disclose information to the
public.
Belal and Owen (2007) in the study on ‘The Views of Corporate Managers on the
Current State of, and Future Prospects for, Social Reporting in Bangladesh: An
42
Engagement-Based Study’ attempted to respond to recent calls for more engagement-
based studies of corporate social reporting (CSR) practice by examining the views of
corporate managers on the current state of, and future prospects for, social reporting in
Bangladesh. The paper used a series of interviews with senior managers from 23
Bangladeshi companies representing the multinational, domestic private and public
sectors. Key findings were that the main motivation behind current reporting practice lies
in a desire on the part of corporate management to manage powerful stakeholder groups,
whilst perceived pressure from external forces, notably parent companies’ instructions
and demands from international buyers, is driving the process forward. In the latter
context it was appeared that adoption of international social accounting standards and
codes is likely to become more prevalent in the future. Reservations were expressed as to
whether such a passive compliance strategy is likely to achieve much in the way of real
changes in corporate behavior, particularly when Western developed standards and codes
were imposed without consideration of local cultural, economic and social factors.
Indeed, such imposition could be regarded as little more than an example of the erection
of non-tariff trade barriers rather than representing any meaningful move towards
empowering indigenous stakeholder groups.
Haque, Jahan and Khan (2007) in their article on ‘Corporate Disclosures through
Director Report—Compliance of the Companies Act, 1994’ studied the important issues
regarding corporate disclosure in terms of director’s report. They determined the degree
of compliance of the information, which is presented in the directors’ report. In this
study, annual reports of 54 companies were evaluated and found that only 8% companies
provided 67%; 35% companies provided 44%; 8% companies provided 33% and 4%
companies provided 22% information in directors’ report required in Companies Act,
1994. As the volume of report is poor, therefore, they provided some suggestions to
improve the volume of information in directors’ report.
Hashim and Saleh (2007), in their paper on ‘Voluntary Annual Report Disclosures by
Malaysian Multinational Corporations’ examined the relationship between the level of
information disclosures and some of the MNCs characteristics. The level of disclosures
was calculated based on the amount of the voluntary disclosure information gathered
43
from annual reports of listed MNCs on Bursa Malaysia across six industries. The study
considered 107 MNCs out of 132 MNCs because of availability of complete annual
reports. The study used content analysis to determine the level of voluntary information
disclosures and the factors affecting its level by the MNCs. Each section of the selected
companies’ annual reports was analyzed and a score was given for each disclosure made.
Overall, the results showed that level of voluntary information disclosures is positively
related to size of the company and the type of audit. Meanwhile, the level of multi-
nationality is significantly related to the level of projected information disclosures.
Meanwhile, the leverage, industry, profitability and the degree of multi-nationality did
not appear to be significant in explaining voluntary annual report disclosures for these
samples of companies. However, some of the variables are significant within a certain
type of information disclosures (i.e. multi-nationality and industry type). On an overall
basis, the level of multi-nationality was significantly related to the disclosure of projected
information. They also found that MNCs in particular industries (e.g. construction
industry) seem particularly inclined to provide certain information (e.g. summary of
history results). Additional tests showed that the level of multi-nationality and the
number of countries where the products were exported jointly determine the level of
voluntary disclosure in MNCs. Thus, these results indicated that the factors explaining
voluntary annual report disclosures differ by the types of voluntary information presented
in annual reports.
Hossain, Islam and Andrew (2006), in their research on ‘Corporate Social and
Environmental Disclosure in Developing Countries: Evidence from Bangladesh’
investigated the extent and nature of social and environmental reporting in corporate
annual reports. Specifically, they examined the relationship between social and
environmental disclosure and several corporate attributes in a developing country,
Bangladesh. Disclosure Index Approach has been used to provide an evaluation of the
social and environmental disclosure in Corporate Annual Reports. In order to do this,
they have developed and utilized a disclosure index to measure the extent of disclosure
made by companies in corporate annual reports. The disclosure index constructed for this
study included 60 items, which were used in social and environmental index
44
formulations. The items of social and environmental information included in the social
and environmental disclosure index have been developed based on: i) Items of social and
environmental information commonly required by the statutes in Bangladesh; ii)
Disclosure items identified in other studies examining disclosure in Bangladesh; and iii)
Disclosure indices generally used in developing countries other than Bangladesh, and iv)
Disclosure indices generally used in developed countries. The sample covered the annual
reports of companies for the year 2002-2003. The sample represented 107 of the whole
population of 150 the non-financial companies listed on the Dhaka Stock Exchange. The
independent variables used in the study include size (proxied by sales and assets),
profitability (proxied by rate of return on assets and net profit margin), multi-nationality
(subsidiaries of the multinational companies), industry type, international link of the audit
firm, and audit fees. It was found industry variable, presence of debenture in financial
statements, and net profit margin was positively significant at 5% level. The relationship
between social and environmental disclosure and other five were found not to be
significant.
The study also found significant differences in levels of social and environmental
disclosure, as measured by the mean values of the social and environmental disclosure
index in Bangladesh and a very few companies in Bangladesh are making efforts to
provide social and environmental information on a voluntary basis, which are mostly
qualitative in nature. Companies in Bangladesh appeared to have the lowest levels of
social and environmental disclosure. It was also found that significant number of the
lowest ranking companies suffered losses during the period under study and significant
proportions of the ranking companies were subsidiaries of multinational companies or
large corporations.
Ahmed (2005) in the research paper ‘Voluntary Reporting Practices in Corporate Annual
Reports: The Case of Bangladesh’ empirically examined the voluntary reporting practices
of listed non-financial companies in Bangladesh and compare the volume of voluntary
reporting to industry type. In order to improve transparency in the corporate sector
financial reporting systems, compliance of rules and regulations regarding disclosure
requirements is a must. The author found that some companies report voluntary
45
information in addition to the mandatory requirements to make the financial reports more
understandable to their users but the volume of reporting voluntary information in very
low. He also found that variability in the volume of reporting voluntary information is
very low which indicated the greater similarity among the companies in respect of
reporting voluntary information.
Askary and Jackling (2005), in their research on ‘Corporate Financial Disclosure

Practices in Asian and Middle Eastern Countries’ investigated the financial disclosure
practices of corporate annual reports published in Asian countries including Bangladesh,
Indonesian, Malaysia and the Middle East countries including Bahrain, Iran, Jordan,
Kuwait, Oman, Pakistan, Qatar, Saudi Arabia and Turkey. The purpose of the study was
to measure the financial disclosure diversity in these countries, with a view to developing
a classification of their similarities and differences in respect to their compliance with
International Accounting Standards (IAS). Annual reports of 126 public companies listed
on the countries' stock exchanges were the central data source, supplemented with other
relevant information about financial disclosure practices in each country. A disclosure
checklist adopted from all IASs and summarized in 306 individual items of financial
disclosures is used as a means of extending an understanding of financial reporting in
these countries. Results showed the relative degree of conformity with IASs for each of
the countries included in this study.
Einhorn (2005) in his study on ‘The Nature of the Interaction between Mandatory and
Voluntary Disclosures’ demonstrated the crucial role that firms’ mandatory disclosures
play in determining their voluntary disclosure strategies. The author also tried to show
how a firm’s propensity for providing voluntary disclosures relates to various features of
the mandatory disclosure environment and disclosure regulation. The special case of
choosing between aggregated and disaggregated disclosures serves as an illustration of
the model’s applicability. Most existing studies do not consider voluntary disclosures of
firms in conjunction with their mandatory disclosures. The paper evaluated the
interaction between firms’ mandatory and voluntary disclosures, demonstrating the key
role that firms’ mandatory disclosures play in determining their voluntary disclosure
policies. By analyzing how various features of the disclosure regulation affect firms’
46
incentives for making voluntary disclosures, the author provided accounting
policymakers with useful knowledge for designing disclosure rules in light of their
overall impact on the level of disclosure in the market.
Ahmed, Bala and Chowdhury (2004) in the paper on ‘Financial Reporting in

Compliance with International Accounting Standards: A Study in Bangladesh with
Reference to IAS-1’ was an endeavor to highlight the IAS-1 which is mandatory to be
followed in preparation and presentation of financial statements in Bangladesh.
According to IAS-1, financial statements include balance sheet, income statement,
statement of changes in equity, cash flow statement and accounting policies and
explanatory notes. In addition to these statements, companies are encouraged to report
more statements like environmental report and value added statement to assist users in
making their decision. The study found that violation of provisions of IAS-1 in some
cases exists due to lack of enforcement and in some cases, due to having no category
specific format of financial statements. The authors surveyed some annual reports of
selected companies and evaluated their compliance in the context of IAS-1. As per their
evaluation they found that all listed companies do not follow IASs in preparing their
annual published accounts. The authors requested professional accounting bodies to come
forward in this regard to improve the compliance requirement by framing out the
company category specific formats as per requirements of both IASs and regulatory
framework.
Muttakin and Hossain (2003) in their research paper on ‘Presentation of Financial

Statements: A Study of the listed Cement Companies’ examined the legal framework for
the presentation of financial statements. Presentation of financial statements is regulated
by legal framework and accounting standards in order to ensure the quality of the
statements and to serve the needs of the users like present and potential investors,
employees, creditors, suppliers and other creditors, customers, government and their
agencies and the public. The study found that the listed cement companies followed the
legal provisions and International Accounting Standard-1 (IAS-1) in case of presentation
of financial statements and they opined that adoption of IAS-1 added a new dimension to
the presentation of financial statements and improved the presentation of financial
47
statements. They conclude their study providing some suggestions for improving the
presentation of financial statements.
Muttakin and Hossain (2003) in the study on ‘Interim Financial Reporting Practices in
Bangladesh’- highlighted the current interim financial reporting practices and examined
the current practices on the basis of IAS 34 on Interim Financial Reporting. Interim
financial reports are prepared for a shorter period than the annual reports for providing
the latest information to their users. As per the findings of the study, the interim reports in
Bangladesh are prepared simply to comply the legal requirements but do not serve the
interest of the investors or other users of the reports. They suggested that the interim
financial reporting should be performed following the para-16 of IAS-34 to make the
interim reports more meaningful and beneficial. The study disclosed the deficiency of the
current practices in the light of IAS-34 and advocated the observances of this standard in
interim financial reporting.
Abu-Baker and Naser (2000) in the study on ‘Empirical Evidence on Corporate Social
Disclosure (CSD) Practices in Jordan’ provided empirical evidence on corporate social
disclosure practices in a sample of 143 companies. They chosen the sample from four
different industry groupings and these companies form 83% of the total population of
companies listed on the Amman Financial Market. The results of the analysis revealed
that CSD received modest attention from most surveyed companies in terms of space
devoted and subjects covered in such disclosure in the annual reports. But only a limited
number, however, of Jordanian companies operating in the banking and manufacturing
sectors which have articulated their CSD responsibilities in a convincing manner. The
themes most commonly disclosed across the four industry groupings were human
resources and community involvement. Environmental disclosure needs much more
attention by the Jordanian shareholding companies. They found significant differences
among various industry groupings were, on the other hand, noted with respect to the
amounts, methods and locations of CSD in the annual reports of the sampled companies.
Jahur and Riyadh (2000) in their paper on ‘Rules and Regulations Influencing the
Published Annual Accounts of Listed Companies in Bangladesh-An Evaluative Study’
48
stated present rules and regulations influencing published annual accounts of listed
companies in Bangladesh. They evaluated the reporting practices of listed companies
whether the companies are complying the regulatory guidelines or not. They examined
annual reports of economically important industries in Bangladesh. The authors gave
more emphasis to discuss existing legal aspect including some important provisions
influencing the reporting practices. The authors showed their disappointment for non-
compliance of the rules and regulations by the listed companies. Finally, they concluded
with providing some recommendations for improving the accounting and reporting
practices of listed companies in Bangladesh.
Hye and Muttakin (1999) in their study on ‘Financial Reporting under the Companies
Act, 1994’ examined the legal framework for financial reporting in Bangladesh. It had
been strengthen to a great extent by the Companies Act, 1994. The researcher found that
the adoption of International Accounting Standards (IAS) by accountancy bodies would
steer in new era of financial reporting in Bangladesh. Perusal of the annual reports of the
progressive companies revealed marked improvement in their reporting practices.
Alam and Jahur (1994) in the study on ‘The Annual Reporting Practices of Bangladesh
Petroleum Corporation-An Evaluation’ attempted to evaluate the legal framework
regarding accounts and audit, reporting practices and efficiencies in reporting of
Bangladesh Petroleum Corporation. The study covers the Corporation and its
subsidiaries, legal status regarding accounts and audit of the corporation, annual reporting
practices and deficiencies of the corporation in reporting practices. The authors found
that the annual reporting practices of the corporation is in line with legal requirements but
the financial statements can be made more informative and communicative if the
deficiencies could be removed. They expect that professional accountants can play
important role in this regard.
Hossain and Rashid (1992) in their paper on ‘A Study of the Efficiency and Efficacy of
the Accounting System of Chittagong University’ attempted to evaluate the efficiency
and efficacy of the accounting system of Chittagong University. Both primary and
secondary data were used for the study and desk research and field survey methodology
49
was used in this regard. They found that accounting practice of the University is
governed by section 56 to 57 of the Chittagong University Act, 1973 and regulated by
Accounts Manual which was made effective from December 18, 1968 and the manual
was modified from time to time by the Syndicate as per requirements. As per the findings
of the study, a significant part of the users, that is, teachers, officers and students opined
that accounts department is in efficient in satisfying of their needs. Finally, the authors
provided some suggestions to improve the services of the accounting system of the
University of Chittagong.
Purohit (1991) in the study on ‘Accounting Practices in the Local Government of

Bangladesh—A Study on Union Parishad Accounting System’ tried to reveal to
accounting systems, techniques, model, local framework and general principles
governing the local government or Union Parishad accounting system of Bangladesh. The
study attempted to highlight the gaps between the standard and actual practice. The
author randomly chosen 10 Union Parishad and directly interviewed the Chairmen and
Secretaries on the basis of pre-designed questionnaire. The study found that the
efficiency of the accounting system is not satisfactory and have scope foe improvement
as it does not serve the purpose of planning and control to a significant extent.
Hye (1988) in the paper titled ‘A Study of the Accounting and Reporting Practices of
Bangladesh Shipping Corporation’ attempted to describe the organizational set-up of the
accounts department and accounting and reporting practices of Bangladesh shipping
corporation which was formed to provide shipping services on international routes and to
carry out all forms of activities connected with shipping. The author evaluated the
regulations regarding accounts and audit and separately evaluated the accounting
practices and reporting practices of the corporation. The study found that accounts
department is under-staffed having only 72 persons against 179 positions; the
qualification requirements for various positions of the department have not need strictly
followed; a good number of accounts personnel has no training in accounting techniques
and procedures; the legal provisions regarding accounts are not very explicit, there is no
accounts manual and accounting and reporting system is manual. The study also
commented that the annual reporting practices of the corporation appears to be
50
satisfactory compared to those of other corporations, annual reports are quite
comprehensive and informative. Finally, author identified some deficiencies of the
accounting and reporting practices of the corporation.
3.3 Literature Review regarding Conventional Banks and Financial Institutions

Hossain (2011), in his study on ‘Disclosure Requirements in Annual Reports by the
Listed Banking Companies: Cases from Bangladesh’ attempted to identify the disclosure
requirements in annual reports of banking companies in Bangladesh. The study reviewed
most of the laws, regulations and guidelines to identify the disclosure requirements of the
banking companies but makes an attempt to show the compliance status of only two
traditional interest-based banks. The study did not considered the requirements of Islamic
banking companies and the study period of the sample banks was limited to the annual
reports of 2009 only. The paper did not prepare any comprehensive list of disclosure
items and did not use any statistical tools for analyzing the data. The study found that the
banking companies are complying with most of the regulations and in some cases they
are proactive in this regard. The paper recommended a single regulation system and
compilation of all disclosure requirements for easy compliance and minimizing the
redundancy in requirements.
Uwalomwa (2011), in his study on ‘An Empirical Investigation of the Association

between Firms’ Characteristics and Corporate Social Disclosures in the Nigerian
Financial Sector’ investigated the association between firms’ characteristics and the level
of corporate social disclosures in the Nigerian financial sector. Using the judgmental
sampling technique, a total of 31 listed firms have been selected for the study based on
their level of market capitalization and direct financing of most firms from the
manufacturing industry. Also, using the content analysis method of eliciting data, a
scoring scheme was used for measuring the extent of corporate social disclosure in the
annual report of the selected listed firms for the time period of 2005-2009 due to heighten
interest and increased awareness noticed among stakeholders within these periods. For
the purpose of this study; twenty (20) content category items within four (4) testable
dimensions of corporate social disclosure was developed for coding, from other relevant
prior literatures. They include: theme, evidence, location in corporate annual reports,
51
news type and time. However, using accounting based measures; size of firm as an
independent variable in this study was measured by the natural logarithm of firms’ total
assets. Also, profitability and audit firms which are both independent variables in this
study were measured by return on assets and size of audit firms respectively. Moreover, a
dichotomous procedure known as the kinder Lydenberg Domini (KLD) social
environmental performance rating system was used to measure the total disclosure score.
A score of one (1) was awarded if an item was reported; otherwise a score of zero (0) was
awarded. Consequently, a firm could score a minimum of 0 and a maximum of twenty
(20) points.
Based on the hypotheses identified in the study, findings from the Pearson correlation
analysis clearly showed a positive association existed between the dependent variable
(CSD) and the independent variables that is (SIZE, ROA and AUD) and the correlation
are all significant at 0.01level. These results further provided an insight to the fact that to
a very large extent, firms attributes such as size of firms, profitability and the size of audit
firms do plays a very significant role in or has a strong influence on the level of
disclosure among the selected listed firms in Nigeria. In addition, the paper observed that
corporate social disclosures by listed firms are still in its infancy. The paper therefore
asked for standard setting bodies to put in place a corporate social environmental
reporting framework, in order to improve the level of corporate social disclosures among
of listed firms in the financial industry.
Ahmed (2009) in his study on ‘Compliance of Financial Disclosure in Corporate Annual

Reports of Banking Sector in Bangladesh’ evaluated the compliance of financial
disclosure in annual reports of only 12 general banking companies of Bangladesh. The
author determined the extent of disclosure on the basis of disclosure index approach. He
calculated the un-weighted disclosure index (UDI) based on 144 score items classified
into 9 separate heads. In this analysis, he found a difference in extent of disclosure
among the banks though the regulatory roots are same for all. In his study, a survey was
conducted on only 61 samples consisting 9 financial analysts, 12 professional
accountants, 10 stock brokers, 13 accounting professors and 17 bank loan officers were
taken for evaluating the qualitative characteristics of accounting information of the
sample banks. The study found that among the reasons, a majority of the respondents use
52
financial reports for reading and academic interest and for holding or selling shares in
their private capacity; annual reports provide adequate and reliable data which are
comparable, readable as well as relevant. But the respondents were different in opinion
regarding compliance of IAS by the banking companies in Bangladesh.
Hossain (2008), in his study on ‘The Extent of Disclosure in Annual Reports of Banking
Companies: The Case of India’ empirically investigated of the extent of both mandatory
and voluntary disclosure by listed banking companies in India. It also reported the results
of the association between company-specific attributes and total disclosure, i.e.,
mandatory and voluntary, of the sample companies. 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 was 88, whilst the average score for
voluntary disclosure was 25. The findings also indicated 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. Results also indicated that Indian banks were very compliant with the rules
regarding mandatory disclosure. In contrast, they were far behind in disclosing voluntary
items. The paper has contributed to the academic literature, showing that the existence of
a close monitoring system by regulatory authorities brings the potential for high
compliance regarding disclosure and transparency, at least in mandatory cases. The study
is a good example for other developing countries, wanting to learn how Indian banks
achieved this high level of compliance in mandatory disclosure.
Sejjaaka (2007), in the study on ‘Corporate Mandatory Disclosure by Financial

Institutions in Uganda’ focused on corporate mandatory disclosure in the financial sector,
which is defined to include banks and insurance companies, in Uganda. There were 26
banking institutions and 17 insurance companies in Uganda at the time of the study. But
because of availability of annual reports only 35 (81 percent) organizations were studied
of which 21 banking institutions and 14 insurance companies. The findings showed that
there is a significant correlation between relative mandatory scores (RMSs) for disclosure
by financial institutions and auditor type (Big-Four versus non-Big-Four independent
audit firms), multinational corporation status, size and number of years in operation
53
(age). The relationship between RMS and leverage, return on equity and liquidity was
found not to be significant. When the predictors were regressed against the dependent
variable, it is found that auditor type and firm age are the best predictors of disclosure at
the 0.01 level of significance. The overall level of disclosure in the sector was also found
to be extremely poor regardless of auditor type, and this may be related to a weak
regulatory environment.
Uddin, Iqbal and Reza (2006) in a paper titled ‘Disclosure Practices: A Comparison of
Commercial Banks and Insurance Companies in Bangladesh’ analyzed the reporting
practices of commercial banks and insurance companies in accordance with the
compliance of all disclosure requirements under legal framework and non-regulatory
practices. In the study, the authors evaluated the annual reports of a sample of
commercial banks and insurance companies in Bangladesh. The authors found that
commercial banks and insurance companies do not comply with all the mandatory
reporting requirements in their annual reports and they do not make sufficient voluntary
disclosure in addition to mandatory disclosure. Finally, they recommend some measures
to improve the disclosure practices of the commercial banks and insurance companies.
Spiegel and Yamori (2004), in their study on ‘Determinants of Voluntary Bank

Disclosure: Evidence from Japanese Shinkin Banks’ investigated the determinants of
disclosure by Japanese Shinkin banks in 1996 and 1997. This period was unique because
disclosure of non-performing loans was voluntary for Shinkin banks at that time. The
authors determined the degree of disclosure among small Japanese credit associations
known as Shinkin banks and evaluated the impact of Shinkin bank characteristics in 1998
on their decisions concerning bad loan disclosure in 1996 and 1997. The sample is unique
because disclosure of non-performing loans by Shinkin banks was voluntary in 1996 and
1997, but became compulsory in 1998. They found that banks with more serious bad loan
problems, more leverage, less competitive pressure, and smaller banks were less likely to
choose to voluntarily disclose. These results suggest that there may be a role for
compulsory disclosure, as weak banks appear to disproportionately avoid voluntary
disclosure.
54
Hossain (2004) in the CPE Seminar paper on ‘Disclosure by Banking Companies in
Annual Financial Statements’ has made an attempt to evaluate the progress made, discuss
shortcomings in the published accounts and audit reports of some selected private
commercial banks and recommended some measures for both ICAB, which regulate
independent auditors, and the Bangladesh Bank, which regulates the clients of the
auditors. In that study, he reported the survey findings as examples only and these should
not be considered as a detailed summary of all the individual reports. The study found
that improving the published financial information of banking companies results in
greater transparency and accountability and leads to better performance of the whole
financial sector. The findings revealed that Bangladesh Bank and ICAB as the prime
regulatory bodies ca play important role for improving disclosure performance of this
sector. By successfully implementing a significant part of IAS-30 in the year 2000 and
2003, Bangladesh Bank has proven that the financial sector is keen on improving its
image. He suggested that the amendments made by Bangladesh Bank need to be
reviewed to check duplication and compared with IASs for contradictions and omissions.
Rahman and Muttakin (1997) in the article titled ‘Reporting Practices of Life Insurance
Companies in Bangladesh’ tried to describe the legal framework regarding accounts and
audit of the life insurance companies and the annual reporting practices and pointed out
the deficiencies of their reporting practices. Out of 6 life insurance companies, the
authors have studied 3 sample companies namely National Life Insurance Company
Limited, Delta Life Insurance Company Limited, and Sandhani Life Insurance Company
Limited. They found that shareholders, government, investors, and employees are the
important users of the reports of the sample companies. The study revealed that
disclosure practices of the sample life insurance companies are in line with the legal
requirements and they follow the prescribed forms for preparation of the financial
statements. They also found that these forms and information fails to meet the
information needs of the users, as these are not in keeping with modern practices of
disclosure.
55
3.4 Literature Review regarding Financial Reporting of Islamic Banks
Hossain (2012), in the paper on ‘Financial Statements of banks under Islamic Shari’ah:
Status of Regulatory Compliance’ tried to identify the regulatory requirements in
preparing the financial statements of Islamic banks and makes an attempt to show their
compliance status with legislative and administrative requirements. The paper covered all
the full fledged Islamic banks but the study was conducted based on a limited set of data
requirements and also limited to only the financial statements of 2010. The study did not
make any perceptions analysis of the users of financial statements of Islamic banks and
did not perform any statistical test in this regard. The paper found that overall maximum
compliance rate is 100% which was obtained by IBBL whereas overall minimum
compliance rate is 80.06% which was obtained by FSIB. The industry’s average
compliance rate is 88.11% considering refereeing the legislation as complied, disclosure
in the face of financial statements, disclosure of information in the notes as a part of
financial statements and other requirements.
Sobhani, Zainuddin and Amran (2011), ‘Religion as an Emerging Institutional Factor

behind Sustainability Disclosure Practices in Bangladesh: The Case of an Islamic Bank’
attempted to identify the main motivational factors behind the CSD practices through
managerial interviews of an Islamic bank. Recent studies show that banking companies
disclose more sustainability information led by some Islamic banks in Bangladesh. The
reasons behind such voluntary disclosure by the Islamic banks are not identified by
previous researchers. Therefore, a sample Islamic bank named here as ‘Moon' was
purposively selected for its successful business operations and socioeconomic
contributions during last 27 years in the local context. The study found that although
there are some factors such as central bank regulations, environmental movement,
institutional award, professionalism and corporate culture, the role of religion that is,
Islam has emerged as a vital force behind the CSD practices of the Islamic bank. From
the institutional perspective, religious faith fuels the cognitive mechanism in creating new
institutional forms.
Awan (2010), in his paper on ‘Comparative Analysis of Accounting Disclosure in the

Financial Statements of Islamic and Conventional Banks Operating in Pakistan’ tried to
56
analyze accounting ratio disclosure of financial statements of both Islamic and
Conventional banks and compare their results for the period 2006-2008 in order to assess
which segment is performing well. The results of the study are very encouraging because
the performance, profitability and risk management of Islamic banks are far better than
selected conventional banks. Islamic banks outperformed conventional banks in assets,
deposits, financing, investments, efficiency, and quality of services and recovery of loans
during the review period. The worth noting point is that the loan default ratio of Islamic
banks is very low vis-à-vis conventional banks due to their strict risk management
framework. The paper also compared the financial performance of the Islamic banks and
conventional banks based on financial disclosure indicators suggested by IMF and State
Bank of Pakistan but did not compare the disclosure practices of the both types of banks
and the quality of their disclosures.
Hassan and Harahap (2010), in their study on ‘Exploring Corporate Social

Responsibility Disclosure: The Case of Islamic Banks’ tried to explore whether any
discrepancy exists between the corporate social activities disclosed in the annual reports
of Islamic banks and the corporate social responsibility (CSR) disclosure index which has
been developed based on the Islamic business ethics framework. The paper reported on a
survey of annual reports of seven Islamic banks using the method of content analysis to
measure the volume of CSR disclosure. The results showed the overall mean CSR
disclosure index of one Islamic bank out of seven to be above average and the issues of
CSR are not of major concern for most Islamic banks. The limitation of the study
includes CSR disclosure in the Islamic banks is experimental and could be explored in
greater depth. The findings have important implications for academics and researchers, as
they pave the ways for further investigation. The results also have important implication
for Accounting and Auditing Organization for Islamic Financial Institutions in
developing a CSR reporting standard if Islamic banks are to enhance their image and
reputation globally, as well as to remain competitive.
Maali, Casson and Napier (2006), in their research on ‘Social Reporting by Islamic
Banks’ attempted to identify the structure of social reporting by Islamic banks and also
evaluated the performance of selected Islamic banks in this case. The last thirty years
57
have witnessed the appearance and rapid expansion of Islamic banking both inside and
outside the Islamic world. Islamic banks provide financial products that do not violate
Shari’ah, the Islamic law of human conduct. The Islamic principles upon which the banks
claim to operate give an important role to social issues. Applying these principles, the
paper developed a benchmark set of social disclosures appropriate to Islamic banks.
These were then compared, using a disclosure index approach, the actual social
disclosures contained in the annual reports of twenty-nine Islamic banks (located in
sixteen countries) to this benchmark. In addition, content analysis was undertaken to
measure the volume of social disclosures. The analysis suggested that social reporting by
Islamic banks fall significantly short of expectations. The results of the analysis also
suggested that banks required to pay the Islamic religious tax Zakat provide more social
disclosures than banks not subject to Zakat. The implication of this discussion is that
there are three broad objectives that can be used as the basis for identifying the social
disclosures of Islamic business enterprises: (1) to show compliance with Islamic
principles, in particular dealing justly with different parties; (2) to show how the
operations of the business have affected the wellbeing of the Islamic community; and (3)
to help Muslims to perform their religious duties.
Harahap (2003), in his paper on ‘The disclosure of Islamic Values – Annual Report: The
Analysis of Bank Muamalat Indonesia’s Annual Report, empirically evaluated the annual
report of Islamic bank to justify how they are reporting their information to the users and
whether they can maintain fairness and justice. In a capitalist system, an annual report
that includes financial statement is assumed to provide sound information concerning a
given company. The annual report offers a background to a company, its financial
position, operational results, and its performance. According to radical economics, a
financial statement serves the interests of capitalists (Belkaoui, 1984). Annual reports are
also value free and are not concerned with issues such as justice or ethics. Indeed, current
trends in accounting have raised some questions concerning the paradigm of traditional
accounting theory and especially its bias concerning capitalist interests. The emergence
of Employee Reporting, Value Added Accounting, Socio-Economic Accounting, and
Environmental Accounting, to name just a few, is evidences of the shortcomings of the
capitalistic accounting system in establishing both just and fair principles among
58
company stakeholders. This has therefore led to a demand for a new approach towards
accounting disclosure including among others things: a clear account of how a company
treats its employees, society, the environment, and the beliefs of employee’s. Even tough
the standard formulated by AAOIFI (1998) based on capitalistic accounting, are still in a
theoretical stage of development but they can be used as a starting point that may help
lead to an improved set of disclosure criteria that can be used by an Islamic bank or
organization. This paper will discuss the empirical evidence derived from one such
Islamic organization. Bank Muamalat Indonesia, has compiled information using
capitalistic accounting standards so as to clarify its financial position and results of
operations to stakeholders. It is hypothesized though, that the current disclosure system
employed gives no indication of justness or fairness and so is incompatible with Islamic
value. The paper argues Muslim researcher should aim to move from utilizing capitalistic
practice primarily concerned with the disclosure of financial indicators and towards a
system that also consider justice, fairness, and ethical practices.
Sarker (2000), in his study on ‘Regulation of Islamic Banking in Bangladesh: Role of

Bangladesh Bank’ examined the basic rules and regulations of Islamic banking in
Bangladesh and the role of Bangladesh Bank in promoting Islamic banking in
Bangladesh. As regards the supervision and inspection of the banks in Bangladesh, an
equal treatment is being followed for all banks including the Islamic ones by the
Bangladesh Bank. In some cases, Bangladesh Bank has given some special provision for
the Islamic banks. Yet, for the smooth development and operation of the Islamic banking,
Bangladesh Bank should devise the separate regulatory and supervisory guidelines for the
Islamic banks and non-bank Islamic financial institutions.
Baydoun and Willett (2000), in their paper on ‘Islamic Corporate Reports’ attempted to
develop a theory about the form and the content of the financial information that should
be contained in Islamic financial statements. The theory suggests that the presence of the
Islamic religion as a cultural variable affects the way certain accounting measures are
interpreted and the manner in which accounting information should be disclosed. Two
important criteria for disclosure in Islamic accounting are identified: a form of social
accountability and a rule of full disclosure. This leads to a modification of the form of the
59
conventional Western set of financial statements, which were referred to the paper as
Islamic corporate reports (ICRs). The specific recommendations were that ICRs should
contain a value-added statement as the focus of performance of the accounting entity and
a current value balance sheet in addition to the historic cost balance sheet. It was argued
that ICRs, extended in this way, would better serve the needs of users wishing to act in
accordance with the Islamic code.
Hameed, et. al. (n.d.): The paper on ‘Alternative Disclosure & Performance Measures
for Islamic Banks’ presented some alternative reporting and performance measures which
could be used by Islamic banks which are more in line with their established objectives.
The authors developed different indices like disclosure index, environmental disclosure
index, corporate governance index, Social responsibility index, Islamicity index,
Development of financial index such as profit sharing ratio, Zakat performance ratio,
Equitable distribution ratio, directors-employees welfare ratio, Islamic investment vs.
non-Islamic investment ratio, Islamic income vs. non-Islamic income ratio and AAOIFI
index etc. In addition the study empirically tested these measures on two Islamic banks of
two different countries such as Bank Islam Malaysia Berhad (BIMB) and Bahrain Islamic
Bank (BIB). As per the overall findings of the study, it was observed that Bahrain Islamic
Bank (BIB) seemed to disclose more information as compared to Bank Islam Malaysia
Berhad (BIMB) even though the corporate governance indicator has dragged down its
overall Islamicity disclosure index. They recommended that the Islamic banks should
disclose more information in future even to the extent that it might disclose negative
activities conducted by the banks during the financial year.
3.5 Conclusion
On the basis of the literature review, it can be said that the studies in accounting and
reporting practices is not adequate and there is huge scope of study in this regard. In case
of accounting and reporting in Islamic banking, the studies available are very poor and
have more scope to study in this specialized area. Most of the studies were conducted on
the legal requirements in case of reporting information but the volume of data reported to
their users and the changes in volume of reporting were not adequately analyzed. Hence,
the present study tried to eliminate these limitations of accounting and reporting practices
in Islamic banking in Bangladesh.
60
4.1 Introduction
This chapter considers the context of the study, that is, the environment or situation based
on which the thesis was prepared. This chapter will signify the strengths and weaknesses
of the perspective of the thesis. This chapter includes an overview on Bangladesh,
banking history of Bangladesh, foundation of Islamic banking and Islamic banking
history, Islamic banking in Bangladesh context and banking companies in Bangladesh.
4.2 An Overview on Bangladesh

Bangladesh, officially the People's Republic of Bangladesh (Bengali: Gonoprojatontri
Bangladesh), is a country in South Asia. It is bordered by India on all sides except for a
small border with Myanmar to the far southeast and by the Bay of Bengal to the south.
Together with the Indian state of West Bengal, it makes up the ethno-linguistic region of
Bengal. The name Bangladesh means "Country of Bengal" in the official Bengali
language. When India was partitioned in 1947, Bengal was partitioned along religious
lines, with the western part going to India and the eastern part joining Pakistan as a
province called East Bengal (later renamed East Pakistan), with its capital at Dhaka
(Collins and Lapierre, 1986). However, despite the economic and demographic weight of
the east, Pakistan's government and military were largely dominated by the upper classes
from the west. The Bengali Language Movement of 1952 was the first sign of friction
between the two wings of Pakistan (Collins and Lapierre, 1986). Subjected to political
and linguistic discrimination as well as economic neglect at the hands of West Pakistan,
the Bengalis of East Pakistan declared independence in 1971. After a civil war, with help
from India and the USSR, Bangladesh was born (Alam, 2007).
Government and Politics: After its independence, Bangladesh became a parliamentary
democracy, with Sheikh Mujibur Rahman as the Prime Minister. In the 1973 parliamentary
elections, the Awami League gained an absolute majority. On August 15, 1975, Sheikh
Mujib and his family were assassinated by mid-level military officers (Mascarenhas, 1986).
A series of bloody coups and counter-coups in the following three months culminated in the
ascent to power of General Ziaur Rahman, who reinstated multi-party politics and founded
the Bangladesh Nationalist Party (BNP). Zia's rule ended when he was assassinated in 1981
by elements of the military (Mascarenhas, 1986). Bangladesh's next major ruler was General
Hossain Mohammad Ershad, who gained power in a bloodless coup in 1982 and ruled until
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1990, when he was forced to resign under western donor pressure in a major shift in
international policy after the end of communism when anti-communist dictators were no
longer felt necessary. Since then, Bangladesh has reverted to a parliamentary democracy.
Zia's widow, Khaleda Zia, led the Bangladesh Nationalist Party to parliamentary victory at
the general election in 1991 and became the first female Prime Minister in Bangladesh's
history. However, the Awami League, headed by Sheikh Hasina, one of Mujib's surviving
daughters, clinched power at the next election in 1996 but lost to the Bangladesh Nationalist
Party again in 2001. Bangladesh enjoys the distinction of having two female politicians
leading national politics. In January of 2007, following widespread violence, a caretaker
government was appointed to administer the next general election. But democratic system
has been suspended under emergency law since January 2007 and continued for about two
years. At the end of 2008 again Awami League came to power with a huge two-third
majority in the Parliament and expected to lead the country up to the end of 2013.
Bangladesh is a member of the Commonwealth of Nations, SAARC, BIMSTEC, the OIC and
the D-8 (Alam, 2007).
Population, Language, Education and Culture: Bangladesh is among the most densely
populated countries in the world. The population is generally poor and living in rural
conditions. Bangladesh has the highest population density in the world, excluding a
handful of city-states and small countries with populations under 10m, such as Malta and
Hong Kong.
Table No.4.1: Showing the overall population, language, education and cultural position
of Bangladesh at a glance
Population 158,570,535 (July 2011 est.)
Growth rate 1.566% (2011 est.)
Birth rate 24.68 births/1,000 population (2009 est.)
Death rate 8 deaths/1,000 population (2009 est.)
Life expectancy 60.25 years (Male: 57.57 years and Female: 63.03 years (2009 est.)
Age Structure 0-14 yrs: 34.6%; 15-64 yrs: 61.4% and Over 65 yrs: 4% (2006 est.)
Urban population 27% (Rate of Urbanization 3.5% annual rate of change) (2005-2010)
Official Language Bengali
Ethnic Group Bengali, Meitei, Khasi, Santhals, Chakma, Garo (tribe), Biharis, Oraons,
Mundas and Rohingyas, etc.
Religion Islam 89.7%, Hinduism 9.2%, Buddhism 0.7%, Christianity 0.3% and
others 0.1%. The majority of the Muslims are Sunni consisting of 95% of
the Muslim population. (2001 census)
Literacy 43.1% (Male: 53.9% and Female: 31.8% (2003 est.)
Education exp. 2.7% of GDP (2005) country comparison to the world: 151
Source: Bangladesh - Wikipedia, the free encyclopedia.htm
62
Bangladesh is largely ethnically homogeneous. Indeed, its name derives from the Bengali
ethno-linguistic group, which comprises 98% of the population. Bengalis, who also
predominate in the Indian state of West Bengal, are one of the most populous ethnic
groups in the world. Variations in Bengali culture and language do exist of course. There
are many dialects of Bengali spoken throughout the region. The dialect spoken by those
in Chittagong and Sylhet are particularly distinctive (Alam, 2007).
Resources and Economic Position: The economy of Bangladesh is a rapidly developing

market-based economy. Its per capita income in 2010 was est. US$1,700 (adjusted by
purchasing power parity). According to the International Monetary Fund, Bangladesh
ranked as the 44th largest economy in the world in 2011 in PPP terms and 57th largest in
nominal terms, among the Next Eleven or N-11 of Goldman Sachs and D-8 economies,
with a gross domestic product of US$269.3 billion in PPP terms and US$104.9 billion in
nominal terms. The economy has grown at the rate of 6-7% per annum over the past few
years. More than half of the GDP is generated by the service sector; while nearly half of
Bangladeshis are employed in the agriculture sector. Other goods produced are textiles,
jute, fish, vegetables, fruit, leather and leather goods, ceramics, ready-made goods.
Remittance from Bangladeshis working overseas, mainly in the Middle East, is the major
source of foreign exchange earnings; exports of garments and textiles are the other main
sources of foreign exchange earnings. Ship building and cane cultivation have become a
major force of growth. GDP's rapid growth due to sound financial control and regulations
has also contributed to its growth; however, foreign direct investment is yet to rise
significantly. Bangladesh has made major strides in its human development index. The
country's main endowments include its vast human resource base, rich agricultural land,
relatively abundant water, and substantial reserves of natural gas, with the blessing of
possessing the world’s only natural sea ports in Mongla and Chittagong, in addition to
being the only central port linking two large burgeoning economic hub groups SAARC
and ASEAN.
63
Table No.4.2: Showing the overall economic position of Bangladesh at a glance
Fiscal year 1 July - 30 June
GDP $112 billion (nominal; 2011 est.); $283.5 billion (PPP; 2011 est.)
GDP per capita $1,900 (PPP; 2011 est.)
GDP growth 6.3% (2012 est.)
GDP by sector Agriculture: 18.4%, Industry: 28.6%, Services: 53% (2011 est.)
Inflation (CPI) 8.69% (2011-2012)
Imports $30 billion (2012 est.) [China 18.9%, India 12.7%, Singapore 6%,
Malaysia 4.7%, Japan 4%] (2010)
Import Goods Machinery and equipment, chemicals, iron and steel, textiles, foodstuffs,
petroleum products, cement, etc.
Exports $24.28 billion [US 19,7%, Germany 16,1%, UK 9,5%, France 7,2%,
Netherlands 4,3%] (2012)
Export Goods Apparel, ships, jute and jute products, frozen fish and seafood, leather and
leather products, ceramics, pharmaceuticals, cement, processed food,
fertilizer, etc.
Main Industries Textiles and apparel, jute, tea, leather, telecommunications,
pharmaceuticals, cement, ceramics, shipbuilding, fertilizer, food
processing, paper newsprint, light engineering, sugar, fisheries, rubber, ship
repairing, agriculture, etc.
Foreign reserves $13.53 billion (January 2013)
Source: Bangladesh - Wikipedia, the free encyclopedia.htm
The stock market capitalization of the Dhaka Stock Exchange in Bangladesh crossed $10
billion in November 2007 and the $30 billion dollar mark in 2009, and USD 50 billion in
August 2010. But the bullish capital market turned bearish during 2010, with the
exchange losing 1,800 points between December 2010 and January 2011. Millions of
investors have been rendered bankrupt as a result of the market crash. The crash is
believed to be caused artificially to benefit a handful of players at the expense of the big
players.
4.3 Banking History in Bangladesh

Banking in Indian subcontinent is as old as banking in other parts of the world. In ‘Vedic’
literature dating as far as 4000 years, there are references signifying the existence of
banking in a crude form.
British Period (1757-1947)

Modern banking in this subcontinent was started taking its roots with the consolidation of
power by the British in India through ‘Agency House’. The employees of East India
Company used to deposit their savings into agency houses. During 1757 to 1837 in
Calcutta alone as many as 62 ‘mercantile and agency houses’, said to be the predecessor
of modern banking, were established. The first European bank in Calcutta namely
64
‘Hindustan Bank’ (Bank of Hindustan) was established in 1770 followed by ‘Bengal
Bank’ (1785), ‘General Bank of India Limited’ (1786), Sreerampore Savings Bank
(1819), Commercial Bank (1819), Calcutta Bank (1824), Union Bank (1829),
Government Savings Bank (1833), Presidency Bank of Bombay (1840), Presidency Bank
of Madras (1843), Delhi and London Bank (1844) and Chartered Bank of India, Australia
and China (1853). The Reserve bank of India was established in 1934 as Central Bank
under the ‘Reserve Bank of India Act’ (Raquib, 2007).
Pakistan Period (1947-1971)

After the separation of the subcontinent, two separate countries, Pakistan and India came
into existence in 1947. In 1948, the central bank of Pakistan ‘State Bank of Pakistan’ was
established followed by National Bank of Pakistan and Commercial bank in Pakistan. In
that time, National Bank of Pakistan, Habib bank and the Australasian Bank had a branch
in East Pakistan. During the period from 1950 to 1958, three other banks, namely, the
Premier Bank, the Bank of Bawalpur and the Muslim Commercial Bank opened their
branches in East Pakistan. The other four banks, that is, the United Bank, Union Bank,
Standard Bank and Commerce Bank started their business in this area during 1959 to
1965. Two banks the Eastern Mercantile Bank (now Pubali Bank Limited) and Eastern
Banking Corporation (now Uttara Bank Limited) was established by East Pakistani
owner in 1959 and 1965 respectively (Raquib, 2007).
Bangladesh Period (1971 and onwards)

National Bank of Pakistan was the largest commercial bank in the then East Pakistan.
After liberation of Bangladesh in 1971, this bank along with two smaller banks, Premier
Bank and Bank of Bahawalpur were merged into Sonali Bank. The bank was
nationalized under Government order P.O.26, 1972. This bank was transformed into a
Public Limited Company under 100% ownership of Government and started functioning
as Sonali Bank Limited on 15 November, 2007. Pubali Bank limited was the outcome
of some visionary peoples’ endeavor to rise even under the autocratic rule of Pakistan. In
1959 some courageous men decided to establish a commercial bank owned by Bengali
persons alone and as a result Eastern Mercantile Bank came into reality in the then East
Pakistan. After liberation in 1972 the bank was nationalized in the name Pubali Bank as
65
the Government policy was such. As a result of change in policy of the Government in
1983 it was denationalized and renamed as Pubali Bank limited. Agrani Bank was
nationalized after liberation of Bangladesh. It started functioning as a commercial bank in
1972 and continued as a public sector bank till 16 May, 2007. On 17 May the bank
started the third chapter of its life as a limited company. Janata Bank Limited is one of
the biggest commercial banks of the country. It’s a state owned bank that was formed just
after liberation of Bangladesh in 1972. In fact, it was a combination of two smaller banks
namely United Bank Limited and Union Bank Limited. Janata Bank was converted to a
limited company on 15 November, 2007. In the year 1965 a commercial bank was
established in private sector at Dhaka named as Eastern Banking Corporation and after
liberation the bank was nationalized as Uttara Bank by the Government against order
P.O. No. 26, 1972. Later on as the GOB relaxed its policy towards private sector, the
bank was denationalized in early eighties. Rupali Bank Limited was established in a
newly independent country of Bangladesh as a nationalized commercial bank in the year
1972. RBL emerged through merger of three comparatively smaller private banks of the
then East Pakistan, namely Muslim Commercial Bank Ltd. Australasia Bank Ltd. and
Standard Bank Ltd. with all their assets, liabilities, benefits, rights, powers, authorities,
and obligations, merged into one by the Bangladesh Bank (Nationalization Order 1972,
P. O. No. 26, 1972). Rupali Bank Ltd. came out as the largest public limited banking
company of Bangladesh on 14 December, 1986.
After the liberation of the country, the Government of Bangladesh decided to establish a
bank that would nourish and develop agriculture. As a result Bangladesh Krishi Bank
came into reality following the Presidential order no. 27, 1973. International Finance
Investment and Commerce Bank Limited (IFIC) Bank started functioning as a finance
company in 1976 and it was formed as a joint venture between the Government of
Bangladesh and several farsighted sponsors from private sector. As GOB relaxed rules
and allowed private sector to establish banks in 1983, IFIC was transformed into a
commercial bank. At present GOB owns 32.75% of total shares of the bank and private
entrepreneurs own 8.62% of that and the rest is in the hands of general people. Arab
Bangladesh Bank Limited was established on 12 April, 1982 and renamed as AB Bank
Limited in 2005. The first private commercial bank, solely owned by Bangladeshi
66
citizens came into reality in 1983 with the name, National Bank Limited. The City
Bank Limited started its journey on 27th March 1983
The establishment of Islami Bank Bangladesh Limited on March 13, 1983, is the true
reflection of this inner urge of its people, which started functioning with effect from
March 30, 1983 and it is the first Islamic bank in Southeast Asia. United commercial
Bank Limited came into reality and GOB was kind enough to participate as a share
holder of it. It started operating as a commercial bank in 1983. Rajshahi Krishi
Unnayan Bank was established by the Presidential Ordinance No. 58, 1986, taking all
the assets and liabilities of Bangladesh Krishi Bank, Rajshahi Division. It’s a government
owned bank and started functioning with a vision to utilize properly the agricultural
potential of Rajshahi Division (Presently Rajshahi & Rangpur Division). ICB Islamic
Bank Ltd. was registered as a public limited company on April, 1987 under the
Companies Act, 1913 and started functioning as 2nd Islamic commercial bank on 20 May,
1987 as ‘Al-Baraka Bank Ltd.’ The bank changed its name from Al-Baraka Bank
Bangladesh Limited to ‘The Oriental Bank Limited’ and again on 18th May, 2008
changed its name to ‘ICB Islami Bank Limited’. BASIC Bank Limited (Bangladesh
Small Industries and Commerce Bank Limited) came into operation on 21 January,
1989. BASIC Bank was established with a vision to extend financial support for the
hundreds of thousands of small and cottage industries of the country. At the inception, it
was a joint venture of BCC foundation and the Government of Bangladesh, holding
shares of 70% and 30% respectively. As the BCC foundation became non-functional,
100% shares of the bank were taken up by GOB on 4 June, 1992. So, the bank is now
owned by the state.
Being established in 1992, Eastern Bank Limited has proved itself as one of the most
valuable financial institutions in the mean time. Starting its journey as an investment
company in 1985, National Credit and Commerce Bank ltd. came out as a private
commercial bank in 1993. Prime Bank Ltd. was created and commencement of business
started on 17th April 1995. Al-Arafah Islami Bank Limited was incorporated in June
18, 1995 and started operation as 3rd Islamic bank in the private sector banking in
Bangladesh from September 27, 1995. Dhaka Bank Ltd. was registered as a public
67
limited company in the year 1995 and it started functioning as a commercial bank on 5
July, 1995. Social Islami Bank Limited is a fourth Islamic Bank in Bangladesh which
was incorporated on 5th July, 1995 and launched its banking operations of 22nd
November, 1995 as ‘Social Investment Bank Limited’ and changed its name to the
present one on August 2009. Southeast Bank Limited was established as a third
generation private sector bank of Bangladesh in 1995. Dutch-Bangla Bank Limited
(DBBL) started its formal operations from June 1996. Since then DBBL gained its huge
popularity because of its social welfare activities and affordable banking service. One
Bank Limited came into existence as a commercial bank following its incorporation in
May, 1999. Mercantile Bank Limited was established by a few dynamic people from
industrial and commercial sectors of the country. The bank started its journey as a
commercial bank on 02 June, 1999.
Export Import Bank of Bangladesh Limited started functioning as ‘Bengal Export

Import Bank limited’ on 3 August, 1999 and was renamed as present on 16 November of
the same year. EXIM Bank started functioning as a commercial bank and on July, 2004
it switched over from conventional banking to a Shariàh based Islami banking system.
Bangladesh Commerce Bank Ltd (BCBL) was formed following the National
Parliament Act no. 12, 1997 on 16 Sep, 1999. This bank is a unique example of public-
private partnership. Mutual Trust Bank Limited started its banking activities on 24
October, 1999 following the issuance of license by Bangladesh Bank on 05 October,
1999. First Security Islami Bank Ltd. was incorporated as a limited company on 29
August, 1999 and received clearance from Bangladesh Bank (The Central Bank) on 22
September, 1999. The bank started functioning as a commercial bank from its first branch
on 25 October, 1999. In 2008, the bank switched over from traditional baking to Islamic
banking. Banking activities of Bank Asia Limited was initiated on 27th day of
November, 1999. Premier Bank is one of the latest generation commercial banks of
Bangladesh. The bank started functioning in 1999 after being established under the
Banking Companies Act, 1991. Standard Bank Limited was established as a Public
Limited Company in 1999 under the Companies Act, 1994.
68
In the year 1999, Trust Bank Limited emerged as a private commercial bank in the
banking arena of Bangladesh. Shahjalal Islami Bank commenced its operation as a
commercial bank on 10 May, 2001 under the Bank Companies Act, 1991 to provide
Islamic Shariàh based banking services. SJIBL started functioning with a vision to
develop itself as a unique Islami bank of the country with all modern services and
products available for the clients. Jamuna Bank Limited came out in reality through the
initiatives of some dynamic people, who were from different sectors of commerce, trade
and industries. It was registered in 2001 as a commercial bank under the Companies Act,
1994. The bank started its banking activities on 03 June, 2001. BRAC Bank Limited has
started its journey in the Banking Sector of Bangladesh in 2001. BRAC Bank is well
known for its SME Banking in Bangladesh. Bangladesh Development Bank Limited
(BDBL) is fully state owned Commercial Bank of Bangladesh established in 2009
combining Bangladesh Shilpa Bank and Bangladesh Shipa Rin Sangstha. On 5th
February, 2013, Bangladesh Bank provided final approval of five new banks which are:
Union Bank Limited, South-Bangla Agricultural Bank Limited, Meghna Bank Limited,
NRB Bank Limited and NRB Commercial Bank Limited.
4.4 Islamic Banking—The Foundations

Islam is a complete code of life (Al-Qur’an, 5:3) because Allah (SWT) and Allah’s
messenger Prophet Mohammad (SAW) gave us guidelines regarding every aspect of
human life to be dealt with (Al-Qur’an, 16:89). Allah (SWT) said, “This day, I have
perfected your religion for you, completed My favor upon you, and have chosen for Islam
as your religion--.”(Al-Qur’an, 5:3). Islamic banking derives its principles from the
Shariàh, the Islamic law, which is founded on the Qur’an and the Sunnah. The General
Secretariat of the Organization of Islamic Conference (OIC), in 1978, approved following
definition of Islamic Bank, ‘Islamic Bank is a Financial Institution, whose statutes, rules
and procedures expressly state it’s commitment to the principles of Islamic Shari’ah and
to the banning of the receipt and payment of on any of its operations (Rahman, 2008).’
Chapra & Khan (2000) define Islamic banks as: “…depository institutions whose core
business is financial intermediation on the basis of a combination of profit-and-loss and
sales-based modes of financing.”
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According to Tamimi (2005) the main principles of Islamic banking are: “…the
prohibition of all sources of unjustified enrichment and the prohibition of dealing in
transactions that contain excessive risk or speculation”. In BRPD Circular 15 issued by
Bangladesh Bank on 09 November, 2009 provided the definition of Islamic bank as-
‘Islamic bank’ means such a banking company or an Islamic banking branch (es) of a
banking company licensed by Bangladesh Bank, which follows the Islamic Shariàh in all
its principles and modes of operations and avoids receiving and paying of interest at all
levels.
As defined, Islamic Banks aim to provide banking services that are in accordance with
Islamic Principles and Shari’ah within the complete Islamic financial system, which in
turn aims to bring the most benefit to society in terms of equity and prosperity, rather
than focusing solely on creating maximum returns on capital (Zaher and Hassan, 2001).
Islamic banks aim to achieve the socio-economic goals of the Islamic religion which are
reaching full-employment, a high rate of economic growth, equitable distribution of
wealth and income, socioeconomic justice, smooth mobilization of investments and
savings while ensuring a fair return for all parties and finally emphasize the stability of
money value (Hassan and Mervyn, 2007; Chapra, 1995).
4.5 Islamic Banking—The Historical Context

The main difference between Islamic banking and conventional banking is the ban on
interest by the former. Most people are not aware of the fact that around 3000 years ago
charging interest on a loan was forbidden by the Christians, Jews and Muslims
(Venardos, 2006). In the Torah can be read that usury, or excessive interest, was
forbidden amongst the Jews and the same goes for the Christians as is stated in the Old
Testament. Even in the Veda, the oldest scriptures of Hinduism, can be found that in
Ancient India there existed laws that criticized usury and that prohibited the use of
interest rates (Hassan & Lewis, 2007). However, throughout history the use of interest
was discovered as a very profitable tool in the banking industry and was needed to
stimulate economic growth. The Jews started with charging interest in 12th and 13th
century and now-a-days this is still the foundation of our conventional banking system.
70
Though Islamic banking is a contemporary and famous media of financial transactions to
the Muslims but its history dates back to the 1950s when a small private Islamic bank
established in Pakistan but din not exist for long. In 1950s, the concept of Islamic
banking was a matter of hypothesis and research but Islamic banking was experimented
in 1960s. Then 1970s can be called as the decade of establishment and 1980s can be
termed as the decade of success and expansion.
For utilizing and the savings for performing Hajj by Malaysian Muslims, in 1962
Malaysian Government established an interest free financial institution known as
‘Pilgrims Savings Corporation’. Modern Islamic banking was started through
establishment of ‘Mitghamar Bank’ by Dr. Ahmed-El-Nagger in 1963 at Mitghamar,
Egypt. Though the life of that bank was only five years, but this bank is considered to be
the first model of modern Islamic banking throughout the world. In 1975, Islamic
Development Bank (IDB) was established and consequently in following three years
seven Islamic banks and financial institutions namely (i) Dubai Islami Bank, (ii) Kuwait
Finance House, (iii) Faisal Islami Bank, Sudan, (iv) Jordan Islami Bank for Finance and
Investment, (v) Islamic Banking System International Holding S. A., Luxemburg, (vi)
Faisal Islami Bank of Egypt and (vii) Islamic Investment Co. Ltd., Syria, was established.
In 1978, Islamic Foreign Ministers Conference in Dakar (Senegal) recommended to the
members of OIC to ensure systematic efforts for establishment of Islamic Banks
gradually and during the next three years of their recommendations, 20 Islamic banks and
financial institutions were established.
In fact, there are currently more than 475 Islamic financial institutions spread over 75
countries and well over 250 mutual funds that comply with Islamic principles (Malik,
Malik and Mustafa, 2011). Over the last decade, this industry has experienced growth
rates of 10-15 percent per annum—a trend that is expected to continue (Sole, 2007).
Rogers (2004) and Iqbal, Ahmad & Khan (1998) also showed that the Islamic finance
had an annual growth rate in assets of around 15 percent. But Malik, Malik and Mustafa,
(2011) pointed out that over the last couple of decades or so, Islamic banking and finance
has grew into a full fledge system and has still been growing at an astonishing rate of 15-
20 percent, i.e., it is doubling every 5 years. The Islamic financial institutions are
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growing much faster than conventional banks because of the strong demand among
consumers for products and services that comply with Shariàh (Benaissa, Parekh and
Wiegand, 2005). Similarly Archer and Karim (2002) maintained that the major forces for
the development of Islamic banking institutions is the growing sense of Islamic identity
and religious consciousness among the peoples in Muslim countries. These institutions
are not only operating in the Muslim countries but as well in other countries where
Muslims are a minority, for example, in the United States, Great-Britain, Australia, China
and France. Furthermore the Islamic banking products are not solely used by Muslims but
as well by people with other religious backgrounds. The compliance with principles that
forbid ambiguity, exploitation, deceit and fraud is appealing to many non-Muslims as
well (Venardos, 2006).
Islamic banking is fully adopted in the Islamic countries of Iran and Sudan. In those
countries all financial institutions are operating according to the Shariàh. Other
countries, such as Pakistan, Malaysia, Jordan, Bangladesh, Indonesia and Egypt, have a
dual banking system where Islamic banks function next to conventional banks. This is
either done through the creation of separate banks or subsidiaries or through the
establishment of Islamic windows at conventional banks.
4.6 Islamic Banking- Bangladesh Context

Bangladesh inherited an interest based banking system right from the British Council
period and employment of the Muslims in banks was more or less restricted. During the
period 1947-1971 when country was a part of Pakistan, banking of course came under
Muslim control but the system did not changed. Though Pakistan was created in the name
of Islam, the rulers did not take any practical attempt to establish economic system based
on Islamic Principles. Though Bangladesh signed the charter of Islamic Development
Bank (IDB) and committed itself to recognize its economy and financial system as per
Islamic Shariàh. Since independence, Bangladesh saw a new trend in banking both at
home and abroad. Islamic banking successfully operated in Egypt. After the Mit Ghamar
Model, Naser Social Bank were in the process of establishment. During the seventies,
Islamic Development Bank (IDB) at the international level and a number of Islamic
banks at national levels were established in the Muslim world. At home, some
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entrepreneurs were actively working for introduction of Islamic banking. Two
professional bodies ‘Islamic Economics Research Bureau’ (IERB) and ‘Bangladesh
Islamic Bankers Association’ (BIBA) were taking practical steps for imparting training
on Islamic Economics and banking to a group of bankers and arranged some national and
international seminars/workshops to mobilize local and foreign people investors. Their
professional and right-thought activities were streamlined by a number of enthusiastic
businessmen in Bangladesh. They concentrated mainly in mobilizing equity capital for
the prospective Islamic bank. In November 1980, Bangladesh Bank sent a representative
to study the working system of some Islamic banks in different countries. In November
1982, a delegation of IDB came here in Bangladesh and showed their keen interest in
establishing a joint venture Islamic bank in private sector in Bangladesh. Due to
continuous and dedicated work of the above groups and individuals and active support
from the Government, Islamic banking could be established in early eighties (Sarker,
2000).
Islamic banks have been operating in Bangladesh for about 30 years alongside with the
traditional banks. Out of over 47 banks only seven banks have been working on Islamic
principles. Among the Islamic banks, Islami Bank Bangladesh Ltd., which was
incorporated on 14th March, 1983, was the first in this field that went into operation on
30th March, 1983 and introduced a full package of banking services in August 1983,
Islami Bank Bangladesh Limited is considered to be first interest-free bank in South East
Asia. Following the foot steps of Islami Bank Bangladesh Ltd., other Islamic banks and
traditional banks have also practicing Islamic Shari’ah based banking through opening
Islamic Banking Wings. However, other six Islamic banks operating in Bangladesh are
ICB Islamic Bank Limited (started as Al-Baraka Bank Bangladesh Limited on May 20,
1987), Al-Arafah Islami Bank Limited (September 27, 1995); Social Islami Bank Limited
(November 22, 1995); Shahjalal Islami Bank Limited (May 10, 2001); Export Import
Bank of Bangladesh Limited (3rd August, 1999 as Bengal Export Import Bank Limited
and Islamic Baking since July/2004); and First Security Islami Bank Limited (25th
October, 1999). Now-a-days almost all the traditional banks have their Islamic Banking
Wings (Kabir, Ullah & Khan, 2012).
73
Table No.4.3: Overall Banking Sector in Bangladesh at the end of 2010
Bank Number Number Total ROA ROE Net interest Expenditur
types of Banks of Assets income e-Income
Branches (billion Tk.) (billion Tk.) Ratio
SCBs 4 3447 1384.3 1.1 18.4 19.8 80.7
DFIs 4 1382 295.4 0.2 -3.2 6.2 87.8
PCBs 30 2828 2854.6 2.1 20.9 82.8 67.6
FCBs 9 72 320.8 2.9 17.0 13.0 64.7
Total 47 7729 4855.1 1.8 21.0 121.9 70.8
Source: Developed by author based on Bangladesh Bank Reports
4.7 Banking Companies in Bangladesh

After the independence, banking industry in Bangladesh started its journey with 6
nationalized commercialized banks, 2 State owned specialized banks and 3 Foreign
Banks. In the 1980’s banking industry achieved significant expansion with the entrance
of private banks. At present, 47 Banks are operating as scheduled banks in Bangladesh
(consisting of 4 state owned commercial banks; 4 specialized development banks; 9
foreign commercial banks; 23 interest-based private commercial banks and 7 Shariàh
based Islamic banks) and Bangladesh Government gave permission of more 9 Banks
which not yet started their operations. The following are the banks now operating in
Bangladesh:
A. STATE OWNED BANKS

1. Sonali Bank Limited
2. Janata Bank Limited
3. Agrani Bank Limited
4. Rupali Bank Limited
B. SPECIALIZED BANKS
1. Bangladesh Krishi Bank
2. Bangladesh Development Bank Limited
3. Rajshahi Krishi Unnayan Bank
4. Bank of Small Industries and Commerce Bangladesh Limited
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C. PRIVATE BANKS
(a) Foreign Banks
1. Standard Chartered Bank
2. State Bank of India
3. Habib Bank Limited
4. Citi Bank, NA
5. Commercial Bank of Ceylon Limited
6. National Bank of Pakistan
7. Woori Bank
8. The Hong-Kong and Shanghai Banking Corporation Limited
9. Bank Al-Falah Limited
(b) Private Commercial Banks (excluding Islamic banks)

1. AB Bank Limited
2. National Bank Limited
3. The City Bank Limited
4. International Finance Investment and Commerce Bank Limited
5. United Commercial Bank Limited
6. Pubali Bank Limited
7. Uttara Bank Limited
8. Eastern Bank Limited
9. National Credit and Commerce Bank Limited
10. Prime Bank Limited
11. Southeast Bank Limited
12. Dhaka Bank Limited
13. Dutch-Bangla Bank Limited
14. Mercantile Bank Limited
15. Standard Bank Limited
16. One Bank Limited
17. Bangladesh Commerce Bank Limited
18. Mutual Trust Bank Limited
19. Premier Bank Limited
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20. Bank Asia Limited
21. Trust Bank Limited
22. Jamuna Bank Limited
23. BRAC Bank Limited
(c) Islamic Banks

1. Islami Bank Bangladesh Limited
2. Al-Arafah Islami Bank Limited
3. Social Islami Bank Limited
4. Export Import Bank of Bangladesh Limited
5. Shahjalal Islami Bank Limited
6. ICB Islami Bank Limited
7. First Security Islami bank Limited
In addition, there are now 4 non-scheduled banks in Bangladesh which are:

1. Ansar VDP Unnayan Bank
2. Karmashangosthan Bank
3. Probashi Kollyan Bank
4. Jubilee Bank
On 5th February, 2013, Bangladesh Bank provided final approval of nine new banks
which are:
1. Union Bank Limited
2. South-Bangla Agricultural Bank Limited
3. Meghna Bank Limited
4. NRB Bank Limited
5. NRB Commercial Bank Limited
6. Farmers’ Bank Limited
7. Modhumati Bank Limited
8. Midland Bank Limited
9. NRB Global Bank Limited
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4.8 Conclusion
The aim of this chapter four of the thesis is to provide the context of the study, that is, the
environment or situation based on which the thesis was prepared. This chapter will
signify the strengths and weaknesses of the perspective of the thesis. This chapter
highlights the significant issues of Bangladesh, banking history of Bangladesh,
foundation of Islamic banking and Islamic banking history, Islamic banking in
Bangladesh context and banking companies in Bangladesh. The next chapter provides
conceptual and legal framework of accounting and reporting in Bangladesh.
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5.1 Accounting and Reporting
Accounting is in an age of rapid transition because of vast changes in the environment in
which it works. Changing social attitudes combine with developments in information
technology, quantitative methods and the behavioral sciences to affect radically the
environment. The changing environment has extended the boundaries and prospects for
future of accounting and also created some problems (Glautier and Underdown, 1976).
The main purpose of accounting is to provide necessary information to interested parties
for which it identifies, measures, records, and analyzes the information to make them
usable by the users. Few definitions highlight its activities as below:
Accounting is an art of recording, classifying and summarizing in a significant manner
and in terms of money, transactions and events which are, in part at least, of a financial
character, and interpreting the results thereof (AICPA, 1961).
Accounting is an information system and its primary goal is to communicate reliable
financial information to management, owners and outsiders (Agarwal, 1995).
Accounting is an information system that identifies, records, and communicates the
economic events of an organization to interested users (Weygandt, Kieso and Kimmel,
2007).
Accounting prepares different types of report for successful communication of the
financial information to the users. These reports generally include (a) Income Statement,
(b) Balance Sheet, (c) Owners Equity Statement, (d) Retained Earnings Statement, (e)
Cash Flow Statement, etc.
5.2 Techniques of Reporting

Financial statements, auditors’ report, board of directors’ report and notes to the financial
statements are the important parts of published reports of the organizations. In some cases
users do not understand the information reported in these statements. Therefore, for better
understanding, organizations use different techniques which are given below (Hye and
Yeasmin, 2000):
i) Funds flow statements
ii) Highlight statement
iii) Narrative statement
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iv) Summarized Balance sheet and Income statement
v) Statistical records
vi) Policies and procedures of accounts
vii) Ratio analysis
viii) Statement reflecting the effects of inflation
ix) Events subsequent to Balance sheet date
x) Financial statements in vertical forms
xi) Financial statements in Bengali
xii) Statement of cost analysis
xiii) Consolidated financial statements
xiv) Elucidation of directors’ report
xv) Application of accounting standards
xvi) Diagrams and charts
5.3 Types of Reporting Information

Organizations report different types of information to their stakeholders for better
understanding the prevailing situation of the organization and for making appropriate
decision in that regard:
Table: 5.1 showing types of information reported by different organizations
All Information Useful for Investment, Credit and Similar Decisions
Financial Reporting
Area Directly Affected by FASB Standards
Basic Financial Statements
Financial Notes to the Supplementary Other means of Other
Statements Financial Information Financial Information
Statements Reporting
Balance Sheet Examples: Examples: Examples: Examples:
Income Statement Accounting Changing Prices Management Discussion of
Cash flows Policies Disclosures Discussion competition and
Statement Contingencies Oil and Gas Analysis order back log in
Owners’ Equity Inventory Reserves Letters to SEC Forms
Statement methods Information Stockholders Analysts’ Reports
No. of Shares Economic
Alternative Statistics
measures News, Articles
about Co.
Source: Kieso, Weygandt and Warfield (2004), Intermediate Accounting
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5.4 Users of Accounting Reports
Different users use accounting reports which should fulfill the interest of these people.
One study identified the following groups as having a reasonable right to information
which should be recognized in corporate reports (ASSC, 1975, cited in Glautier and
Underdown, 1976):
(a) The equity investor group including existing and potential shareholders and holders
of convertible securities, options or warrants.
(b) The loan creditor group including existing and potential holders of debentures and
loan stock, and providers of short-term secured and unsecured loans and finance.
(c) The employee group including existing, potential and past employees.
(d) The analyst-advisor group including financial analysts and journalists, economists,
statisticians, researchers, trade unions, stock-brokers, and other providers of
advisory services such as credit rating agencies.
(e) The business contact group including trade creditors and suppliers and in a different
sense competitors, business rivals, and those interested in mergers, amalgamations
and takeovers.
(f) The government including tax authorities, departments and agencies concerned with
the supervision of commerce and industry and local authorities.
(g) The public including tax payers, rate payers, consumers and other community and
special interest group such as political parties, consumer and environmental
protection societies and regional pressure groups.
Generally the users of accounting reports are divided into two that internal users and
external users. Internal users of accounting information are those users who remain
within the organization and use accounting information for making internal decision
regarding that organization such as managers, directors, supervisors, offers, etc. External
users of accounting information are those users who remain outside the organization but
have interest in the organization and use accounting information for making decision
regarding that interest such as investors, creditors, suppliers, government, financial
analysts, etc.
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5.5 Qualitative Characteristics of Accounting Information
The SFAC No. 2 of the FASB examined the characteristics that make accounting
information useful. These characteristics are stated below (Porwal, 2010):
(a) Understandability: It is the quality of information that permits reasonably
informed users to perceive its significance, i.e. to understand the content and
significance of financial statements and reports.
(b) Relevance: Relevant information is crucial in making the correct investment
decision. Accounting information has relevance if it makes a difference in a
decision.
(c) Predictive Value: The quality of information that helps users to increase the
likelihood of correctly forecasting the outcome of past or present events.
(d) Feedback Value: The quality of information that enables users to confirm or
correct prior expectations.
(e) Timeliness: Having information available to decision maker before it loses its
capacity to influence decisions.
Graph: 5.1 showing the hierarchy of qualitative characteristics of accounting information
User Specific Qualities
Understandability
Decision Usefulness
Relevance Reliability
Primary Decision
Specific quality
Timeliness
Verifiability Representational
faithfulness
Predictive Feedback
value value
Comparability Neutrality
Source: Financial Accounting Standards Board (1980)
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(f) Reliability: Information is reliable if it is free from error and bias, and faithfully
represents what it purports to represent. If the information is not reliable, then no
investor can rely on it to make an investment decision.
(g) Verifiability: The ability through consensus among measurers to ensure that
information represents what it purports to represent or that the chosen method of
measurement has been used without error or bias.
(h) Neutrality: It is absence in reported information of bias intended to attain a
predetermined result or to induce a particular mode of behavior. The information
should not favor one set of interest over others.
(i) Representational Faithfulness: Correspondence or agreement between a measure
or description and the phenomenon that it purports to represent. From the
accounting point of view, it is correspondence between the accounting figures and
descriptions and the resources or events that these figures and descriptions
represent.
(j) Comparability: The quality of information that enables users to identify
similarities in and differences between two sets of economic phenomena.
(k) Consistency: Consistency means conformity from period to period with
unchanging policies and procedures. Accounting changes hinder the comparison of
operation results between periods as the accounting used to measure those results
differ.
5.6 Accounting for Islamic Organizations

For pious Muslims, following the requirements of Shariàh is central to life. In an Islamic
context, the main objective of corporate reporting is to allow Islamic enterprises to show
their compliance with Shariàh (Baydoun and Willett, 1997). Other objectives of
corporate reporting may include those known in the Western model, such as assisting
decision makers in making economic decisions, but from an Islamic perspective, these
are secondary objectives. This view of the primary objective is adopted by AAOIFI when
setting out its statement of objectives of financial accounting for Islamic banks and
financial institutions. The implication of this position is that Islamic businesses should
disclose all information necessary to advise the Umma (Islamic community) about their
operations, even if such information would work against the firm itself. The concept of
82
disclosure is thus related to the concept of accountability: In an Islamic context, the
Umma has the right to know how organizations that are part of the Umma affect its well-
being (Maali, Casson and Napier, 2006). The duty to disclose the truth is a very important
issue in the Islamic context, and this duty applies to businesses as much as to individuals.
This duty is emphasized in the Qur’an: ‘and cover not truth with falsehood, nor conceal
the truth when you know’ (Al-Qur’an, 2:42). For Islam, Allah is omniscient. Allah
(SWT) says ‘I know what you reveal and what you hide’ (Qur’an, 4:33) and also ‘He
(Allah) knows what is manifest and what is hidden’ (Al-Qur’an, 87:7).
Every Muslim has a final purpose of life of having the satisfaction of Allah (SWTA)
through obeying Islamic Shari’ah. This is because Muslim believes in oneness of Allah,
who is Almighty and All-powerful in haven and earth and He created man just for His
servitude and following Him (Al-Qur’an, 51:56). So, it is required to know and abide by
the ‘Halals’ (Allowed) and ‘Harams’ (Forbidden) in Islam. Interest-based traditional
accounting do not reveal appropriate value of assets in the Balance Sheet for determining
accurate amount of Zakat, the compulsory yearly payment by the rich to the poor.
Therefore, to avoid these sorts of accounting practices and to comply with the principles
of Qur’an and Sunnah, it is essential to follow Islamic accounting in the Muslim world
and Islamic organization replacing current traditional or conventional accounting.
About accounting, Allah (SWT) said (Al-Qur’an, 2:282); “O you who believe! When you
contract a debt for a fixed period, write it down. Let a Scribe write it down in justice
between you. Let not the Scribe refuse to write as Allah has taught him, so let him write.--
-you should not become weary (your contract), whether it be small or big, for its fixed
term, that is more just with Allah; more solid as evidence, and more convenient to
prevent doubt among yourselves...”.
At present, thousands of various Islamic organizations including business organizations

such as bank, insurance and investment companies are operating with specific Islamic
objectives. But their use of interest-based traditional accounting in these organizations is
not fully compatible with these Islamic objectives. Islamic accounting will be more
appropriate to achieve the socio-economic and religious objectives of Islamic institutions
and Muslim users (Shahul, 2001).
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5.7 Objectives of Accounting and Reporting by Islamic Organizations
AAOIFI (2003) suggests the following objectives of Islamic accounting and reporting-
(a) To determine the rights and obligations of all interested parties;
(b) To contribute to the safeguarding of the entity’s assets;
(c) To help compliance with Islamic Shariàh in all transactions;
(d) To provide useful information to users of these reports;
(e) To provide information to determine Zakat;
(f) To provide information on cash flows and its timing;
(g) To provide information on social responsibilities.
Triyuwono (2000) stated some features and objectives of Islamic accounting such as: (a)
the transformation from profit maximization to Zakat maximization, (b) Any activity
(accounting) policy must comply with the Islamic Shari’ah, (c) it would inherently
incorporate a balance between individual character and social character, (d) the enterprise
would be encouraged to participate in releasing humans from the oppression of
economic, social and intellectual factors and releasing the environment from human
exploitation, (e) it provides a bridge between the world and the hereafter. On the other
hand Askary and Clarke (1997) identified the following objectives: (a) to assist users in
their economic and investment decision making, (b) to assist governments in macro and
financial planning, (c) to measure and collect Zakat, (d) to plan and allocate economic
resources, (e) to assist business entities, financial and economic institutions in their
planning based on the Shariàh and (f) to assist investors in their risk-reducing
investments decisions.
5.8 Islamic Accounting and Reporting Model

The model indicates that Islamic Accounting works under the peripheries of Islamic rules
and Shari’ah and Islamic society and produces some differential reports not required in
traditional/conventional accounting.
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Graph: 5.2 showing Islamic Accounting and Reporting Model
The Rules of Islamic Shari’ah
Islamic Society
Firms/Organizations
Contracts/Transactions
Accounting and Reporting Standards
Accounting Policies
Accounting Cycle
Recording Classifying Summarizing Preparation of Interpretation

(Journal) (Ledger) (Trial Balance) Financial Statements and Analysis
a) Income Statement/Value Added Statement

b) Owners’ Equity Statement
c) Balance Sheet
d) Cash flow Statement
e) Reports of Funds for Zakat and Their Uses
f) Reports about prohibited Income & Expenses
g) Social Responsibility Reports
h) Human Resources Development Reports
Source: Ather, S. M. & Ullah, M.H., (2009)
5.9 Differences between Western Reporting and Islamic Reporting

Table: 5.2 showing the differences between Western Reporting and Islamic Reporting
Characteristics Western Reporting Islamic Reporting
Philosophical Economic rationalism Unity of God
Viewpoint
Principles Secular Religious
Individualistic Communal/ Community based
Profit maximization Reasonable profit
Survival of fittest Equity
Process Environment
Criteria Based upon modern commercial Based upon ethical law originating in the
law—permissive rather than ethical Qur’an: (Islamic law, As-sunnah)
Limited disclosure (provision of Full disclosure (to satisfy any reasonable
information subject to public interest) demand for information in accordance with
the Shari’a)
Personal accountability (focus on Public accountability (focus on the
individuals who control resources) community who participate in exploiting
resources)
Source: Baydoun, N. and Willett, R. (2000), Islamic Corporate Reports
85
5.10 Development of Accounting Objectives, Standards and Practices
Accounting systems, objectives of accounting, standards, policies and practices of
accounting are affected by the culture, nature, users and environment of the organization
which are given below:
Graph: 5.3 showing development of accounting objectives, standards and practices
Enterprise Users
1. Management Government
2. Employees 1. Users: Tax Planners
Nature of the Enterprise 3. Supervisory Councils
1. Forms of Business Org. 2. Regulators
4. Board of Directors
2. Operating Characteristics
Other External Users
Accounting Profession The Development 1. Creditors
1. Nature and Extent of a of Accounting 2. Institutional Investors
Profession Objectives, 3. Non-Institutional Investors
Standards and 4. Securities Exchanges
2. Professional Associations
Practices
Local Environmental
Academic Influence Characteristics
1. Rate of Economic Growth
1. Educational Infrastructure
International Influences 2. Inflation
2. Basic and Applied Research 1. Colonial History 3. Cultural attitudes
3. Academic Associations 2. Foreign Investors 4. Public Vs Private Owner-ship
3. International Committals and control of economy
4. Regional Cooperation
5. Regional Capital Markets
Source: Radebaugh, 1975
5.11 Organizations governing accounting and reporting practices of Islamic Banks

The organizations governing the accounting and reporting practices of Islamic banks in
Bangladesh are as stated below:
Table: 5.3 showing organizations governing accounting and reporting of Islamic banks
Sl No. Name of Organizations
1 Bangladesh Bank (BB)
2 The Registrar of Joint Stock Companies and Firms (RJSC)
3 The Securities and Exchange Commission (SEC)
4 Dhaka Stock Exchange (DSE)
5 Chittagong Stock Exchange (CSE)
6 Institute of Chartered Accountants of Bangladesh (ICAB)
7 Islamic Financial Service Board (IFSB)
8 Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI)
9 Others: Ministry of Finance, Central Shari’ah Board of Islamic banks, etc.
Source: Summarized by the author
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5.12 Laws, Regulations and Guidelines for Accounting and Reporting of Islamic
Banks
In case of accounting and reporting, Islamic banks in Bangladesh need to follow the
following laws, regulations and guidelines:
Table: 5.4 showing Acts/Rules governing accounting and reporting of Islamic banks
Sl No. Laws, Regulations and Guidelines
1 The Companies Act, 1994
2 The Banking Companies Act, 1991
3 Securities and Exchange Rules, 1987
4 The Securities and Exchange Ordinance, 1969
5 The Securities and Exchange Commission (SEC) Notifications
6 Bangladesh Bank Circulars (BRPD Circulars)
7 International Accounting Standards (IAS)
8 Bangladesh Accounting Standards (BAS)
9 International Financial Reporting Standards (IFRS)
10 Bangladesh Financial Reporting Standards (BFRS)
11 The Income Tax Ordinance, 1984
12 The Listing Regulations of Dhaka Stock Exchange Limited
13 The Listing Regulations of Chittagong Stock Exchange Limited
14 Financial Accounting Standards issued by ‘Accounting and Auditing Organization for Islamic
Financial Institutions’ (AAOIFI)
15 Standards issued by Islamic Financial Service Board (IFSB)
16 The Nationalization Orders of 1972 & 1973
Source: Summarized by the author
5.12.1 The Companies Act, 1994

This is the main legal framework for companies in Bangladesh. The British Government
originally adopted this Act in India on 27 March 1913 that came into force on 1 April
1914. The Companies Act 1994 was means to consolidate and amend the law relating to
companies and certain other associations (Government of the People’s Republic of
Bangladesh, 1994). There are different provisions laid down in the said Act for ensuring
better disclosure of financial and non-financial health of the companies. The important
provisions of Companies Act, 1994 regarding the financial reports have provided under
Sections 181 to 185 and 192 (See Table 5.5). Section 181 of the Companies Act, 1994
presents the responsibilities to maintain the proper books of accounts. Section 183 (1)
provides the requirements to report audited balance sheet, and profit and loss account in
the Annual General Meeting (AGM) and Section 184 (1) gives the requirements for
directors’ report. Although Section 181 of the Companies Act, 1994 presents the
responsibilities to maintain the proper books of accounts but does not give any specific
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list of accounts to be maintained. Section 183 (2) provides that the maximum time limit
to report a balance sheet and profit and loss account at the AGM. Section 185 (1)
provides that the balance sheet must contain a summary of the property and assets and of
the capital and liabilities of the company giving true and fair view of affairs at the end of
the financial year. Section 185 (2) states that every profit and loss account of a company
shall gave a true and fair view of the profit and or loss of the company for the financial
year and shall, subject as aforesaid, comply with the requirements of Part II of Schedule
XI so far as applicable thereto. Part II of Schedule XI contains two forms of Balance
Sheet- Form A and Form B. Figure of the previous year and those for the current year are
to be provided in the Balance Sheet in both the forms. In addition, the section also states
that in preparing the balance sheet due regard shall be had, as far as may be, to the
general instructions for preparation of balance sheet under the heading "Notes" at the end
of the Part. This notes if carefully examine will show that they are in accordance with
IAS-1, IAS-5, IAS-7, IAS-8, IAS-10 and IAS-13. Part II of the Schedule XI also provides
the list of incomes and expenditures relating to the period covered by the account.
Table: 5.5 showing short description of the different important provisions for disclosure
as per Companies Act
Sections Contents
181(1) Provisions for keeping books of accounts for recording all received and expended.
183(1) & 183(2) Directors’ report to the shareholders, time for holding annual general meeting, etc.
183(3) Provisions for accounts and statements to be prepared for auditing, e.g. balance sheet
and profit and loss statement / income and expenditure, etc.
183(4) Financial Year
183(5) Penalty for directors in default
184(1) Contents of the directors’ report
184(2) Contents of the directors’ report in any material changes of the company’s position.
184(3) Contents of the directors’ report regarding the auditor’s observations, etc.
185 Format and content of the Balance Sheet and Profit and Loss Account
185(7) Punishment in complying the Section 185
186 Particulars of the subsidiary companies by the holding companies
190 Submission of the audited accounts to the Registrar of the Joint Stock Companies
192 Statement to be published by Banking and Certain other Companies
212 & 213 Powers and duties of auditors
Source: Summarized by the author on the basis of The Companies Act 1994.
In addition, Section 184 (1) of the Companies Act 1994 states that there shall be attached
to every balance sheet laid before a company in general meeting a report by its Board of
Directors, with respect to- (a) the state of the company's affairs; (b) the amount, if any,
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which the Board proposes to carry to any reserve in such balance sheet; (c) the amount, if
any, which the Board recommends should be paid by way of dividend; (d) material
changes and commitments, if any, affecting the financial position of the company which
have occurred between the end of the financial year of the company to which the balance
sheet related and the date of the report. Furthermore, section 185 (5) provides that the
directors’ in their report shall be obliged to make out full information and explanations
regarding the comments made in the auditors’ report. More specifically, Section 192
provides that every company being a limited Banking company or an insurance company
has to prepare the statements in accordance with Schedule XII, or as near thereto.
5.12.2 The Banking Companies Act, 1991

This is the new version of the previous Banking Companies Ordinance 1962. All local
and foreign banks are operated under this Act. The important provisions of the Banking
Companies Act, 1991, regarding accounting and reporting have provided in section 18
and 36 to 43 (See Table 5.6). Section 18 (2) of the Banking Companies Act, 1991, states
that banks should report the transactions with directors. Section 36 (1) provides that every
banking company shall submit every half year, on the thirty-first day of December and
the thirtieth day of June, a report showing its assets and liabilities in Bangladesh in the
prescribed form and manner to the Bangladesh Bank. Section 38 states that the accounts
and balance sheet of banking companies will be prepared based on updated instructions
of Bangladesh Bank (BRPD circular 14/2003) and the provisions of the Companies Act,
1994. Section 39 (1) provides that the profit and loss account and financial report of a
banking company shall be audited in accordance with the balance sheet prepared under
section 38 by a person qualified under the Bangladesh Chartered Accountants Order,
1973. As per Section 40, audited financial statements shall be submitted to Bangladesh
Bank within the three moths of the close of the period to which those accounts, balance
sheets and reports relate. When the bank is a private company, at the same time it needs
to send also to the registrar three copies of that balance sheet, account and report as per
section 41. Section 42 provides that every banking company incorporated outside
Bangladesh shall display a copy of the last balance sheet and profit and loss account
prepared under section 38 at any day proceeding the first Monday of February of the year
which follows the year that balance sheet and account relates to in a conspicuous place in
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its principal office and every branch office in Bangladesh and shall keep it
uninterruptedly displayed until its subsequent balance sheet and account are displayed in
the same manner.
Table: 5.6 showing provisions regarding disclosure as per Banking Companies Act
Sections Contents
18 Transaction related to directors should be disclosed
36 Half yearly Returns
37 Power for publishing Information
38 Accounts and Balance Sheets
39 Audit
40 Report Submission
40 Sending Balance Sheet etc. to Registrar
42 Display of Audited Balance Sheet by the Banking Company Incorporated outside
Bangladesh
43 Accounting Provisions not Retrospective
Source: Summarized by the author as per Banking Companies Act, 1991
5.12.3 The Securities and Exchange Rules, 1987

The then Government of Pakistan formulated the ‘The Securities and Exchange Rules’ in
1971. After the Liberation War in 1971, the Government of Bangladesh adopted the
Rules along with the existing laws. Until 1987, there was no separate authority to enforce
the Rules. The Government of Bangladesh created a separate authority in 1987 with this
Rules that are virtually the same Rules of 1971 as far as the corporate financial reporting
is concerned.
Rule 8 of the Schedule of Securities and Exchange Rules, 1987, every member shall
prepare and maintain, as required by sub-section (1) of section 6, the following books of
account and other documents in a manner that will disclose a true, accurate and up to date
position of his business, namely :- (a) journal (or other comparable record), cash books
and any other books of original entry forming the basis of entries into any ledger, the
books of record of all orders for purchase or sale of securities, all purchases and sales of
securities, all receipts and deliveries of securities and all other debts and credits; (b)
ledgers (or other comparable records) reflecting asset, liability, reserve capital, income
and expense accounts; (c) ledgers (or other comparable records) reflecting securities in
transfers, securities borrowed and securities loaned and securities bought or sold of which
the delivery is delayed; (d) record of all balance of all ledger accounts in the form of trial
balances to be prepared at least once at the end of the six months of every year of
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account; (e) record of transaction with the banks; (f) contract books showing details of all
contracts entered into by a member with other members of the exchange or counterfoils
or duplicates or memos of confirmation issued to such other members; and (g) duplicates
or counterfoils of memos of confirmation issued to customers.
Table: 5.7 showing provisions regarding disclosure as per the SEC Rules, 1987
Section Contents
8 Maintenance of books of account, etc. by members
11 Listing of a Security on a stock exchange
12 Submission of Annual Report by the Issuers, the names of the statements, the
provisions for auditing, Time framed for submission-14 days, etc.
13 Submission of half-yearly report by issuers to the stock exchanges on which its
securities are listed.
13A Adaptation or amendment of forms – Forms prescribed for the purpose of preparing
the financial statements and the audit report may be adapted or amended.
14 Mode of filing or submission of return / reports, etc.
15 Risk-based capital adequacy requirements
Source: Summarized by the author as per the SEC Rules, 1987
As per part I of the Schedule of Securities and Exchange Rules, 1987, the assets and
liabilities shall be classified under the headings appropriate to the company’s business,
distinguishing as regards assets between fixed assets, long-term prepayments and
deferred costs, investments, loans and advances and current assets, and as regards
liabilities between share capital and reserves, long-term loans and deferred liabilities and
current liabilities and provisions. As per part II of the Schedule of Securities and
Exchange Rules, 1987, The profit and loss account shall be so made out as to disclose
clearly the result of the working of the company during the period covered by the account
and shall show, arranged under the most convenient heads, the gross income and the
gross expenditure of the company during the period, disclosing every material feature.
Part III of the Schedule of Securities and Exchange Rules, 1987, the cash flows statement
shall be so made out as to disclose clearly the cash flows of the company from its
operating, investing and financial activities, disclosing every material feature.
Rule 13 of Securities and Exchange Rules, 1987, states that every issuer shall, within one
month of close of the first half-year, transmit to the stock exchange in which its securities
are listed, to the security holders and to the Commission half yearly financial statements
which shall be prepared in the same manner and form as the annual financial statements
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and Rule 13 (A) depicts that Forms prescribed for the purpose of preparing the financial
statements and the audit report may be adapted or amended, if deemed necessary, for
compliance with the International Accounting Standards (IAS) and International
Standards on Auditing (ISA).
5.12.4 The Securities and Exchange Ordinance, 1969

The Securities and Exchange Ordinance, 1969 was expedient to provide for the
protection of investors, regulation of capital markets and issue and dealings in securities
and for matters ancillary thereto. Section 6 (1) of The Securities and Exchange
Ordinance, 1969 states that every Stock Exchange and every director, officer and member
thereof shall prepare and maintain such books of accounts and other documents in such
manner as may be prescribed, and every such book of accounts or documents shall be
subject to inspection at all reasonable times by any person authorized by the
1[Commission] in this behalf. Section 18 of the ordinance provides that no person shall,
in any document, paper, accounts, information or explanation which he is, by or under
this Ordinance, required to furnish, or in any application made under this Ordinance,
make any statement or give any information which he knows or has reasonable cause to
believe to be false or incorrect in any material particular.
Rule 11-(1) of The Securities and Exchange Ordinance, 1969 states that an issuer of a
listed security shall furnish to the Stock Exchange, to the security holders and to the
[Commission] an annual report of its affairs and such statements and other reports as may
be prescribed. Rule 11-(2) provides that without prejudice to the provisions of sub-
section (1), an issuer of a listed security shall furnish to the [Commission], such other
documents, information or explanation relating to its affairs as the [Commission] may, at
any time, by order in writing, require. As per Rule 12 of The Securities and Exchange
Ordinance, 1969 states that every director or officer of an issuer who is or has been the
beneficial owner of any class of its listed equity securities and every person who is
directly or indirectly the beneficial owner of more than ten per cent of any class of such
securities shall submit to the [Commission] such returns pertaining to the beneficial
ownership of such securities in such form and at such times or at such intervals as may be
prescribed.
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5.12.5 SEC Notifications
In a notification no. SEC/CMRRCD/2008-181/53/Admin/03/28, dated: the 4th June,
2008, SEC suggested that the issuer companies shall include the following statements/
explanations in its yearly and periodical financial statements: (a) A clear and
unambiguous statement of the reporting framework on which the accounting policies are
based; (b) A clear statement of the company’s accounting policies on all material
accounting areas; (c) An explanation of where the accounting standards that underpin the
policies can be found; (d) A statement that explains that the financial statements are in
compliance with International Financial Reporting Standard (IFRS) issued by the
International Accounting Standard Board (IASB), if this is the case; and (e) A statement
that explains in what regard the standards and the reporting framework used differs from
IFRS, as issued by the IASB, if this is the case.
As per an order No. SEC/CFD/2001/Admin/02-03, dated the 4th October, 2001, SEC
stated that (a) Financial statements shall be prepared in accordance with all applicable
International Accounting Standards (IAS) and the audit thereof shall be conducted in
accordance with the applicable International Standards on Auditing (ISA). The financial
statements shall be audited within 120 days from the date on which the companies’
financial year end; (b) A copy of such audited financial statements and a copy of annual
report and the minutes of the annual general meeting shall be submitted to the
Commission within fourteen days of the completion of the audit or, as the case may be,
holding of the annual general meeting.
In an order by SEC no. SEC/CFD/12:20/99, dated: February 23, 2000 stated that All
public listed companies after dispatching half yearly accounts concerned to the
Shareholders and the Stock Exchange(s) shall publish, within 7 (seven) days, notice in at
least 2 (two) widely circulated daily newspapers, one in Bangla and the other in English,
confirming the fact that the company has dispatched such half-yearly accounts to all
shareholders and the Stock Exchange(s) mentioning period of the said accounts and the
date of dispatch.
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The Securities and Exchange Commission through its Directive no. SEC/CMRRCD
/2009-193/09/Admin/21 dated January 17, 2010, asked the listed companies to make
available the detailed quarterly financial statements (whose abridged form is published in
the newspapers) in their respective websites and listed companies are required to submit
their periodical financial statements [i.e., financial statements for the first quarter (Q1),
third quarter (Q3) and first half-year (Q2)], prepared in accordance with Bangladesh
Accounting Standards (BAS)-34, particularly comparative financial statements in
accordance with Para 20 of BAS-34.
As per another notification No. SEC/CMRRCD/2006-158/Admin/02-08, dated the 20th

February, 2006, SEC imposed some conditions in order to enhance corporate governance
in the interest of investors and the capital market and these conditions are imposed on
‘comply or explain’ basis. That means, the companies listed with any stock exchange in
Bangladesh should comply with these conditions or shall explain the reasons for non-
compliance in accordance with the condition No.5.
Table: 5.8 showing required reporting under condition no. 5.00 of the SEC notification
no. SEC/CMRRCD/2006-158/Admin/02-08
Condition Compliance Status (Put √ in Explanation
No. Title the Appropriate column) for non-
Complied Not Complied compliance
1.1 Board’s Size: Should not be less than 5 (five) and
more than 20 (twenty)
1.2 (i) Independent Directors: At least one tenth (1/10)
and minimum of one
1.2 (ii) Independent Directors: Appointed by the elected
directors
1.3 Chairman of the Board & Chief Executive:
Different individuals with clearly define respective
roles & responsibilities
1.4 (a) Directors’ Report to Shareholders: Fairness of the
financial statements
1.4 (b) Proper books of account of the issuer company
have been maintained
1.4 (c) Appropriate accounting policies have been
consistently applied and estimates are based on
reasonable and prudent judgment
1.4 (d) Compliance of International Accounting Standards
1.4 (e) The internal control system is sound and has been
effectively implemented and monitored
1.4 (f) Ability to continue as a going concern
1.4 (g) Significant deviations from last year in operating
results
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1.4 (h) Key operating and financial data of at least
preceding three years
1.4 (i) Declaration of dividend
1.4 (j) Details of Board Meeting
1.4 (k) The pattern of shareholding should be reported
2.1 Appointment of CFO, Head of Internal Audit and
Company Secretary with clearly define respective
roles, responsibilities
2.2 Attendance of CFO & Company Secretary in the
meetings of the Board of Directors
3.00 Audit Committee as a sub-committee
3.1 (i) Constitution of Audit Committee
3.1 (ii) Constitution of Audit Committee with Board
members including the independent director
3.1 (iii) Filling of casual vacancy in the Audit Committee
3.2 (i) Chairman of the Audit Committee
3.2 (ii) Professional qualification and experience of the
chairman of the Audit Committee
3.3.1 (i) Reporting on the activities of the Audit Committee
3.3.1 (ii)(a) Report on conflicts of interests
3.3.1 (ii)(b) Reporting of any fraud or irregularity to the Board
of Directors
3.3.1 (ii)(c) Reporting of violation of laws, rules and regulation
3.3.1 (ii)(d) Reporting of any other matter which should be
disclosed to the Board of Directors immediately
3.3.2 Reporting of Qualified point Commission
3.4 Reporting of activities to the Shareholders and
General Investors
4.00 (i) Non-engagement of external auditors: In appraisal
or valuation
4.00 (ii) Non-engagement of external auditors: Information
systems design and implementation
4.00 (iii) Non-engagement of external auditors: Book-
keeping
4.00 (iv) Non-engagement of external auditors: Broker-
dealer services
4.00 (v) Non-engagement of external auditors: Actuarial
services
4.00 (vi) Non-engagement of external auditors: Internal
audit services
4.00 (vii) Non-engagement of external auditors: Any other
service that the Audit Committee determines
Source: SEC/CMRRCD/2006-158/Admin/02-08, Dated: February 20, 2006
As per the corporate governance disclosure guidelines, condition-1 regarding board of

directors consisting of board size, independent director, chairman of the board and chief
executive, directors’ report to shareholders; condition-2 regarding chief financial officer
(CFO), Head of internal audit and company secretary; condition-3 relating to audit
committee; condition-4 regarding external or statutory auditors and finally condition-5
guides regarding reporting the compliance in the director’s report.
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5.12.6 Bangladesh Bank Circulars (BRPD Circulars)
Banking Regulation and Policy Department of Bangladesh Bank time to time issues
different circulars regarding accounting and reporting of the banking companies in
Bangladesh. The important circular relevant to the reporting of financial statements of
banking companies in Bangladesh is BRPD Circular 14 issued on June 25, 2003, which is
the replacement of the earlier Circular BRPD Circular 3 issued on April 18, 2000. BRPD
Circular 14 was basically issued for the amendment of the First Schedule of the Banking
Companies Act 1991. As per this circular, banking companies have been preparing their
Balance Sheet, Profit and Loss Account, Cash Flow Statement, Statement of Changes in
Equity and Liquidity Statement from the year 2004. This circular provided 28
instructions on notes to the financial statements and 22 general instructions regarding
preparation and presentations of the financial statements. Basically this circular is the
detailed guidelines regarding measurement, valuation, accounting and reporting of the
financial statements of the banking companies in Bangladesh and banks are also
compelled to follow each and every instruction of this circular. To ensure good corporate
governance in bank management Bangladesh Bank issued BRPD Circular No. 16 dated
July 24, 2003, titled ‘Restrictions in respect of responsibilities and accountabilities of the
board of directors and the CEO of private bank’. But this circular was replaced issuing
another circular on 4 February, 2010, (BRPD circular 6) for making some changes.
5.12.7 International Accounting Standards and International Financial Reporting
Standards (IAS/IFRS)
Accounting standards (IASs) are the norms of accounting policies and practices issued by
the accounting bodies, national and international, for the guidance of their members
regarding the treatment of the items which made the financial statements and their
disclosure therein (Azizuddin, 1991). Hossain (2007) stated that these accounting
standards are intended to describe methods of accounting or disclosure for the application
to all adopted accounting standards expected to give true and fair view of financial
position and results. After establishment of International Accounting Standard Board
(IASB) in 2001, it has been issuing accounting standards named as International
Financial Reporting Standards (IFRSs). Accounting standards adopted by ICAB in
Bangladesh are known as Bangladesh Accounting Standards (BASs) and Bangladesh
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Financial Reporting Standards (BFRSs). As per the notification of Securities and
Exchange Commission (SEC) No. SEC/Section-7/SER/03/132 dated October 22, 1997,
all listed companies require to abide by Bangladesh Accounting Standards (BASs). BAS
30 or IFRS 7, BAS 32 and 39 are influential standards in case of disclosure of banking
companies annual reporting in Bangladesh.
Table: 5.9 showing IAS/BAS/BFRS followed in accounting and reporting

IAS BAS Title of IAS/BAS/BFRS Effective Date
IAS -1 BAS -1 Presentation of Financial Statements Adopted on or after 1st January, 2007
IAS -2 BAS -2 Inventories Adopted on or after 1st January, 2007
IAS -7 BAS -7 Statement of Cash Flows Adopted on or after 1st January, 1999
IAS -8 BAS -8 Accounting Policies, Changes in Adopted on or after 1st January, 2007
Accounting Estimates and Errors
IAS -10 BAS -10 Events after the Balance Sheet Date Adopted on or after 1st January, 2007
IAS -11 BAS -11 Construction Contracts Adopted on or after 1st January, 1999
IAS -12 BAS -12 Income Taxes Adopted on or after 1st January, 1999
IAS -14 BAS -14 Segment Reporting Adopted on or after 1st January, 2007
IAS -16 BAS -16 Property, Plant & Equipment Adopted on or after 1st January, 2007
IAS -17 BAS -17 Leases Adopted on or after 1st January, 2007
IAS -18 BAS -18 Revenue Adopted on or after 1st January, 2007
IAS -19 BAS -19 Employee Benefits Adopted on or after 1st January, 2004
IAS -20 BAS -20 Accounting of Government Grants Adopted on or after 1st January, 1999
and Disclosure of Government
Assistance
IAS -21 BAS -21 The Effects of Changes in Foreign Adopted on or after 1st January, 2007
Exchange Rates
IAS -23 BAS -23 Borrowing Costs Adopted on or after 1st January, 2010
IAS -24 BAS -24 Related Party Disclosures Adopted on or after 1st January, 2007
----- BAS -25 Accounting for Investments Adopted on or after 1st January, 2007
IAS -27 BAS -27 Consolidated and Separate Financial Adopted on or after 1st January, 2010
Statements for Subsidiaries
IAS -28 BAS -28 Investments in Associates Adopted on or after 1st January, 2007
IAS -29 ----- Financial Reporting in Hyperinfla- Not yet adopted by ICAB
tionary Economics
IAS -31 BAS -31 Interest in Joint Ventures Adopted on or after 1st January, 2007
IAS -32 BAS -32 Financial Instruments: Presentation Adopted on or after 1st January, 2010
IAS -33 BAS -33 Earnings per Share Adopted on or after 1st January, 2007
IAS -34 BAS -34 Interim Financial Reporting Adopted on or after 1st January, 1999
IAS -36 BAS -36 Impairment of Assets Adopted on or after 1st January, 2005
IAS -37 BAS -37 Provisions, Contingent Liabilities Adopted on or after 1st January, 2007
and Contingent Assets
IAS -38 BAS -38 Intangible Assets Adopted on or after 1st January, 2005
IAS -39 BAS -39 Financial Instruments: Recognition Adopted on or after 1st January, 2010
and Measurement
IAS -40 BAS -40 Investment Property Adopted on or after 1st January, 2007
IAS -41 BAS -41 Agriculture Adopted on or after 1st January, 2007
IFRS-1 BFRS-1 First-time adoption of International Adopted on or after 1st January, 2009
financial Reporting Standards
IFRS-2 BFRS-2 Share-Based Payment Adopted on or after 1st January, 2007
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IFRS-3 BFRS-3 Business Combinations Adopted on or after 1st January, 2010
IFRS-4 BFRS-4 Insurance Contracts Adopted on or after 1st January, 2010
IFRS-5 BFRS-5 Non-current Assets Held for Sale and Adopted on or after 1st January, 2007
Discontinued Operations
IFRS-6 BFRS-6 Exploration for and Evaluation of Adopted on or after 1st January, 2007
Mineral Resources
IFRS-7 BFRS-7 Financial Instruments: Disclosures Adopted on or after 1st January, 2010
IFRS-8 BFRS-8 Operating Segments Adopted on or after 1st January, 2010
IFRS-9 BFRS-9 Financial Instruments Not yet adopted by ICAB
Source: http://www.icab.org.bd/bas.php, cited on May 5, 2011
BAS 30 has been applying in the financial statements of banks and similar financial
institutions from January 1, 1999. As per BAS 30, Bangladesh Bank suggested a format
for banks through a circular named BRPD circular 3 on April 18, 2000 and revised the
format through another circular named BRPD circular 14 issued on 25 June, 2003. But
from January 1, 2010, BAS 30 has been replaced by BFRS 7.
The objective of this IFRS-7 is to require entities to provide disclosures in their financial
statements that enable users to evaluate: (a) the significance of financial instruments for
the entity’s financial position and performance and (b) the nature and extent of risks
arising from financial instruments to which the entity is exposed during the period and at
the end of the reporting period, and how the entity manages those risks. An entity shall
disclose information that enables users of its financial statements to evaluate the
significance of financial instruments for its financial position and performance.
Paragraph 6 requires an entity to group financial instruments into classes that are
appropriate to the nature of the information disclosed and that take into account the
characteristics of those financial instruments. IFRS 7 requires an entity to disclose certain
specified items of income, expense, gains, or losses, either on the face of the financial
statements or in the notes. These disclosures help users assess the performance of an
entity’s financial instruments and activities. The required disclosures include: (a) Income
statement net gains or net losses for each of the categories of financial assets and
financial liabilities in IAS 39; (b) Total interest income and total interest expense
(calculated using the effective interest method) for financial assets or financial liabilities
that are not at fair value through profit or loss; (c) Fee income and expense (other than
amounts included in determining the effective interest rate) arising from financial assets
98
or financial liabilities that are not at fair value through profit or loss; and trust and other
fiduciary activities that result in the holding or investing of assets on behalf of
individuals, trusts, retirement benefit plans, and other institutions; (d) Interest income on
impaired financial assets accrued in accordance with IAS 39 and (e) The amount of any
impairment loss for each class of financial asset
Paragraph 21 requires disclosure of the measurement basis (or bases) used in preparing
the financial statements and the other accounting policies used that are relevant to an
understanding of the financial statements. Paragraph 34(a) and 36 (a) requires disclosures
of summary quantitative data about an entity’s exposure to liquidity risks and credit risks
based on the information provided internally to key management personnel of the entity.
Paragraph 34(c) requires disclosures about concentrations of risk. Concentrations of risk
arise from financial instruments that have similar characteristics and are affected
similarly by changes in economic or other conditions.
Paragraph 39(a) and (b) requires an entity to disclose maturity analyses for financial
liabilities that show the remaining contractual maturities for some financial liabilities. In
preparing the maturity analyses required by paragraph 39(a) and (b) an entity uses its
judgment to determine an appropriate number of time bands. For example, an entity
might determine that the following time bands are appropriate: (a) not later than one
month; (b) later than one month and not later than three months; (c) later than three
months and not later than one year; and (d) later than one year and not later than five
years.
Paragraph 39(c) requires an entity to describe how it manages the liquidity risk inherent
in the items disclosed in the quantitative disclosures required in paragraph 39(a) and (b).
An entity shall disclose a maturity analysis of financial assets it holds for managing
liquidity risk (e.g. financial assets that are readily saleable or expected to generate cash
inflows to meet cash outflows on financial liabilities), if that information is necessary to
enable users of its financial statements to evaluate the nature and extent of liquidity risk.
Other factors that an entity might consider in providing the disclosure required in
paragraph 39(c) include, but are not limited to, whether the entity: (a) has committed
99
borrowing facilities (e.g. commercial paper facilities) or other lines of credit (e.g. stand-
by credit facilities) that it can access to meet liquidity needs; (b) holds deposits at central
banks to meet liquidity needs; (c) has very diverse funding sources; (d) has significant
concentrations of liquidity risk in either its assets or its funding sources; (e) has internal
control processes and contingency plans for managing liquidity risk; (f) has instruments
that include accelerated repayment terms (e.g. on the downgrade of the entity’s credit
rating); (g) has instruments that could require the posting of collateral (e.g. margin calls
for derivatives); (h) has instruments that allows the entity to choose whether it settles its
financial liabilities by delivering cash (or another financial asset) or by delivering its own
shares; or (i) has instruments that are subject to master netting agreements.
Paragraph 40(a) requires a sensitivity analysis for each type of market risk to which the
entity is exposed. For example: (a) an entity that trades financial instruments might
disclose this information separately for financial instruments held for trading and those
not held for trading and (b) an entity would not aggregate its exposure to market risks
from areas of hyperinflation with its exposure to the same market risks from areas of very
low inflation.
Paragraph 41 permits an entity to use a sensitivity analysis that reflects interdependencies

between risk variables, such as a value-at-risk methodology, if it uses this analysis to
manage its exposure to financial risks. This applies even if such a methodology measures
only the potential for loss and does not measure the potential for gain. Such an entity
might comply with paragraph 41(a) by disclosing the type of value-at-risk model used, an
explanation about how the model works and the main assumptions (e.g. the holding
period and confidence level).
5.12.8 Income Tax Ordinance, 1984

The Income Tax Act 1922 was taken as the Income Tax Act of Bangladesh in 1971 and it
prevailed up to 1984 when the government adapted Income Tax Ordinance, 1984
(Ordinance No. XXXVI of 1984) by a full revision of the Act 1922. As a result, there are
significant changes in the provisions of disclosure in the new Ordinance. The following
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Table summarizes the various provisions for the financial disclosure of companies of
different forms.
Table: 5.10 showing accounting & reporting provisions of Income Tax Ordinance, 1984
Section Contents
20-34 Heads of Income and their calculations
35, 43, 44, 45 Method of Accounting, Computation of Total Income, Exemption, Exemption of
income of an industrial undertakings
79 Production of accounts and documents
80 Statements of assets, liabilities and life style
83AA Self-assessment for private limited companies
100 Liability of directors for unrecoverable tax of private companies
108, 109, 110 Information regarding payment of salary, interest and dividend
114 Power to inspect registers of companies
Source: Summarized by the Researcher based of Income Tax Ordinance, 1984
Although the Ordinance has significant influences on the financial and disclosure
practices of Bangladesh, this is not primarily intended to provide guidelines for published
accounts to the company. The Income Tax Authority gains reasonable power to obtain
required financial information about the companies. However, normally, the authority of
taxes does not disclose information obtained by them. One important point is that
companies need to keep and produce information to the tax authority so that they
recognize their information for the tax purposes. On the basis of that information, the tax
the companies may get exemption and fiscal incentives such as tax holidays, allowable
deductions, etc.
Regarding method of accounting, section 35 of ITO 1984 states that (1) all income
classifiable under the head ‘Agricultural income’, ‘Income from business or profession’
or ‘Income from other sources’ shall be computed in accordance with the method of
accounting regularly employed by the assessee. (2) Notwithstanding anything contained
in sub-section (1), the Board may, in the case of any business or profession, or class of
business or profession, or any other source of income, or any class of persons, by a
general or special order, direct that the accounts and other documents shall be maintained
in such manner and form, and that payments of commercial transactions recorded in such
manner, as may be prescribed or as may be specified in such direction; and thereupon the
income of the assessee shall be computed on the basis of the accounts maintained,
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payments made and transactions recorded accordingly. (3) Without prejudice to the
preceding sub-sections, every public or private company as defined in [the Companies
Act, 1913 (VII of 1913) or 1994, shall, with the return of income required to be filed
under this Ordinance for any income year, furnish a copy of the trading account, profit
and loss account and the balance sheet in respect of that income year certified by a
chartered accountant. (4) Where- (a) no method of accounting has been regularly
employed, or if the method employed is such that, in the opinion of the Deputy
Commissioner of Taxes, the income of the assessee cannot be properly deducted
therefrom; or (b) in any case to which sub-section (2) applies, the assessee fails to
maintain accounts, make payments or record transactions in the manner directed under
that sub-section; or (c) a company has not complied with the requirements of sub-section
(3); the income of the assessee shall be computed on such basis and in such manner as the
Deputy Commissioner of Taxes may think fit. Section 43 guides to calculate total income
for tax purposes and section 44 and 45 direct how to deduct allowances and exemptions.
As per section 80, DCT may ask assessee to submit (a) the total assets, liabilities and
expenses of the assessee as on the date or dates specified in the notice; (b) the total assets,
liabilities and expenses of the spouse, minor children and dependents of the assessee as
on the date or dates so specified; and (c) any assets transferred by the assessee to any
person during the period or periods so specified, and the consideration therefore, (d)
particulars of life style of the assessee. Section 108, 109 and 110 states that organization
should submit a statement on first day of September regarding the name and address of
the persons to whom salaries, interest and dividend were paid or due or the amount
deducted as tax from such amount during the preceding financial year.
5.12.9 Listing Requirements of DSE and CSE

Dhaka Stock Exchange and Chittagong Stock Exchange also regulate the accounting and
reporting practices of the banking companies. The provisions for reporting financial
statements of the listed companies as required by DSE and CSE are similar. As per the
approval of SEC, DSE issued a notification No. SEC/Member-II dated April 8, 1996,
named ‘Listing Regulations of Dhaka Stock Exchange Limited’ in exercise of the powers
given in section 34 (1) of Securities and Exchange Ordinance 1969. As per the listing
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regulation No. 6, statement of audited accounts for the last 5 years or for a shorter
number of years, if the company is in operation only for such shorter period, statement
showing the cost of project and means of finance shall be submitted to DSE at the time of
application for listing or any time on demand by DSE. A listed company shall holds its
annual general meeting and lay before the said meetings balance sheet, profit and loss
accounts and cash flows statements within 9 months following the close of its financial
year and in keeping with the provisions of Act (listing regulation 19). According to
listing regulation 36 (8), when a dividend (interim or final) is declared after the close of
the financial year, such announcement to DSE shall be accompanied by a statement
showing comparative figures of the Turnover figure/Gross operating profit; Gross profit;
Income from other sources; Provisions for taxation and Net profit after Taxation. As per
listing regulation 36 (9), the listed companies shall submit its financial statements before
the expiry of 3 months from the end of its financial year if the figure are provisional and
such financial statements shall be signed by the Chairman or Chief Executive Officer
and/or the Finance Director or in his absence the Chief Accountant.
5.12.10 Accounting and Auditing Organization for Islamic Financial Institutions

(AAOIFI) Standards
Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) was
established in 1990 and registered on March 27, 1991 in Bahrain. AAOIFI is an
International Islamic autonomous non-profit organization which sets accounting, auditing
and governance standards for Islamic financial institutions. AAOIFI already developed
two financial accounting statements, twenty-four financial accounting standards, five
auditing standards, seven governance standards, two ethics standards and forty-five
Shariàh standards (AAOIFI, 2003). Financial accounting standard No. 1 (General
Presentation and Disclosure in the Financial Statements of Islamic Banks and Financial
Institutions) is most important for accounting and reporting of financial aspects of Islamic
banks. In Bangladesh, only IBBL is an associate member of AAOIFI.
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Table: 5.11 showing accounting statements and standards issued by AAOIFI
A Financial Accounting Statements
1 Objectives of Financial Accounting for Islamic Banks and Financial Institutions
2 Concepts of Financial Accounting for Islamic Banks and Financial Institutions
B Financial Accounting Standards
1 General Presentation and Disclosure in the Financial Statements of Islamic Banks and
Financial Institutions
2 Murabaha and Murabaha to the Purchase Orderer
3 Mudarabah Financing
4 Musharaka Financing
5 Disclosure of Bases for Profit Allocation between Owners’ Equity and Investment
Account Holders
6 Equity of Investment Account Holders and Their Equivalent
7 Salam and Parallel Salam
8 Ijarah and Ijarah Muntahia Bittamleek
9 Zakah
10 Istisna’a and Parallel Istisna’a
11 Provisions and Reserves
12 General Presentation and Disclosure in the Financial Statements of Islamic Insurance
Companies
13 Disclosure of Bases for Determining and Allocating Surplus or Deficit in Islamic
Insurance Companies
14 Investment Funds
15 Provisions and Reserves in Islamic Insurance Companies
16 Foreign Currency Transactions and Foreign Operations
17 Investments
18 Islamic Financial Services offered by Conventional Financial Institutions
19 Contributions in Islamic Insurance Companies
20 Deferred Payment Sale
21 Disclosure on Transfer of Assets
22 Segment Reporting
23 Consolidation
24 Investments in Associates
Source: AAOIFI (2003)
The scope (para 1) of Financial accounting standard No. 1 of AAOIFI states that the
standard is applicable to the financial statements published by Islamic banks to meet the
common information needs of the main users of such users. As per the para 2 of standard
No.1, the complete set of financial statements that should be published by Islamic banks
consists (a) A statement of financial position (balance sheet); (b) An income statement;
(c) A statement of cash flows; (d) A statement of changes in owners’ equity or a
statement of retained earnings; (e) A statement of changes in restricted investment; (f) A
statement of sources and uses of funds in the Zakah and charity fund (when the bank
assumes the responsibility for the collection and distribution of Zakah); (g) A statement
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of sources and uses of funds in the Qard fund; (h) Notes to the financial statements; and
(i) Any statements, reports and other data which assist in providing information required
by users of financial statements as specified in the Statement of Objectives. Para 10 states
about the disclosure of basic information about the Islamic bank; para 11-13 state about
the disclosure of significant accounting policies; para 26 suggested the disclosure of
accounting changes; para 28-29 provides guidelines regarding disclosure of related party
transactions; para 30-45 suggested rules on disclosure of financial position (balance
sheet); para 46-52 reveals the rules relating to disclosure on income statement; para 53-57
regarding statement of cash flows; para 58-60 regarding owners’ equity or retained
earnings; para 61-64 relating to statement of changes in restricted investments; para 65-
68 regarding statement of sources and uses of funds in the Zakah and charity fund and
para 69-73 relating to statement of sources and uses of funds in the Qard fund. Basically
each standards of financial accounting of AAOIFI provides rules regarding disclosure
requirements of Islamic banks.
5.12.11 Islamic Financial Service Board (IFSB)

Islamic Financial Service Board (IFSB) is an international organization which sets
standard for Islamic banks, capital markets and insurance industries to enhance and
promote the soundness and stability of the Islamic financial service sector in the world
(www.ifsb.org). In Bangladesh, only Bangladesh Bank attained the full membership of
IFSB and IBBL got the observer membership of the same. Till today, IFSB developed
eleven guiding principles, five guidance notes and one technical note out of which
guiding principle, IFSB-4 (Disclosure to Promote Transparency and Market Discipline
for Institutions offering only Islamic Financial Services) is most important basis for
preparation and presentation of financial statements of Islamic banks.
105
Table: 5.12 showing standards issued by Islamic Financial Service Board (IFSB)
IFSB-1 Risk Management for Institutions (other than Insurance Institutions) offering only
Islamic Financial Services (IIFS)
IFSB-2 Capital Adequacy Standards for Institutions (other than Insurance Institutions) offering
only Islamic Financial Services (IIFS)
IFSB-3 Corporate Governance for Institutions offering only Islamic Financial Services
(excluding Islamic Insurance (Takaful) Institutions and Islamic Mutual Funds)
IFSB-4 Disclosure to Promote Transparency and Market Discipline for Institutions offering
only Islamic Financial Services (excluding Islamic Insurance (Takaful) Institutions and
Islamic Mutual Funds)
IFSB-5 Supervisory Review Process of Institutions offering only Islamic Financial Services
(excluding Islamic Insurance (Takaful) Institutions and Islamic Mutual Funds)
IFSB-6 Governance for Islamic Collective Investment Schemes
IFSB-7 Capital Adequacy Requirements for Sukuk, Securitizations and Real Estate investment
IFSB-8 Guiding Principles on Governance for Takaful (Islamic Insurance) Undertakings
IFSB-9 Conduct of Business for Institutions offering Islamic Financial Services
IFSB-10 Shari’ah Governance Systems for Institutions offering Islamic Financial Services
IFSB-11 Solvency Requirements for Takaful (Islamic Insurance) Undertakings
GN-1 Capital Adequacy Standard: Recognition of Ratings by External Credit Assessment
Institutions (ECAIs) on Shari’ah-Compliant Financial Instruments
GN-2 Risk Management and Capital Adequacy Standards: Commodity Murabaha
Transactions
GN-3 Practice of Smoothing the Profits Payout to Investment Account Holders
GN-4 IFSB Capital Adequacy Standards: The Determination of Alpha in the Capital
Adequacy Ratio for Institutions (other than Insurance Institutions) offering only Islamic
Financial Services (IIFS)
GN-5 Recognition of Ratings by External Credit Assessment Institutions (ECAIs) on Takaful
and Re-Takaful Undertakings
TN-1 Issues in Strengthening Liquidity Management of Institutions offering Islamic Financial
Services: The Development of Islamic Money Markets
Source: www.ifsb.org
The purpose of the Standard IFSB-4 is to specify a set of key principles and practices to
be followed by institutions offering Islamic financial services (IIFS) in making
disclosures, with a view to achieving transparency and promoting market discipline in
regard to these institutions. This Standard is addressed to IIFS and to their supervisory
authorities and other relevant policy-makers. The objectives of the Standard are: (a) to
enable market participants to complement and support, through their actions in the
market, the implementation of the Islamic Financial Services Board’s (IFSB) capital
adequacy, risk management, supervisory review and corporate governance standards; and
(b) to facilitate access to relevant, reliable and timely information by market participants
generally, and by investment account holders (IAH) in particular, thereby enhancing their
monitoring capacity.
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These disclosure principles and practices in IFSB-4 are designed to enable market
participants generally, and IAH in particular, to assess key information on: 1) the type of
IIFS and, where applicable, the scope of the consolidation method used by members of an
Islamic financial group; 2) capital structure and overview of capital adequacy; 3) the
treatment of investment accounts, including their risks and returns; 4) the risk
management process; 5) risk exposures by types of risk, and indicators of risk-sharing
with IAH; 6) key aspects of general governance and Shariàh governance; 7) the scope of
consumer-friendly disclosures concerning such risks and returns, Shariàh compliance
and investment account products; and 8) the role of Islamic windows. Such disclosures,
when combined with adequate market and legal infrastructures, can enable market forces
to enhance the stability and soundness of Islamic finance and reinforce other IFSB
standards.
5.12.12 The Nationalization Orders of 1972 & 1973

After the Liberation War of Bangladesh in 1971, the Government of Bangladesh
nationalized all medium and big companies by issuing a Presidential Order in 1972.
Some new bodies were created named Corporations to control over similar companies by
each of those corporations, for example, Bangladesh Jute Mills Corporation – responsible
for managing and controlling all jute mills in Bangladesh. After the formation of the
corporation, the applications of the Companies Act 1913 were suspended for those
companies under each of the corporations. The Government issued Ordinances for the
management and controlling of these corporations.
Section 21 and 22 of this order states the rules of accounting and auditing of these
organizations. Sub-section 21(1) state that corporations need to prepare annual accounts
including profit and loss accounts, balance sheet and other relevant records and sub-
section 21(2) make auditing of these accounts mandatory by two chartered accountants.
Sub-section 22(2) state that each corporation should submit audited accounts and results
of operations to the government immediately at the end of the financial year and 22(3)
require to publish their audited accounts in the national gazette and to place in the
national assembly. But there are some limitations of these orders. Since there are very
107
limited legal provisions in the respective Ordinances for disclosure of the companies
under corporations, the companies are in fact out of strict legal bindings. Parry and Khan
(1984) pointed out that there is no indication of the contents or forms of the annual
accounts. There is no clear provision for the disclosure of significant accounting policies
followed. There is a regular failure in submitting the annual accounts in time and there is
no provision for the penalty for the same. It is also reported that a few nationalized
companies have outside equity and are listed on Dhaka Stock Exchange (DSE), and
hence publish separate annual reports under the Exchange Rules, 1987 (Hye, 2000 and
Alam, 2007).
5.12.13. Disclosures under Basel II

Basel II, pillar 3 enforces the market discipline with disclosures of objectives and policies
of risk management for each risk type (credit risk, market risk, operational risk, interest
rate risk in the banking book, equities), including:
a) strategies and processes;
b) structure and organization of the relevant risk management functions;
c) extent and content of risk reporting and/or measurement systems;
d) risk management/risk mitigation strategies and;
e) processes for monitoring the efficiency of risk mitigation strategies
Disclosures encourage market discipline by developing a set of disclosure requirements

which will allow market participants to assess key pieces of information on the scope of
application, capital, risk exposures, risk assessment processes, and hence the capital
adequacy of the institution.
Basel II - Disclosure Requirements

A) Qualitative information
a) Difference between accounting-relevant and regulatory consolidation as well as
overview of the group companies and their inclusion in the group of consolidated
companies (full consolidation, pro-rata consolidation, deduction).
b) Restrictions for (regulatory) capital transfer within the group.
B) Quantitative information
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a) Details of surplus capital of insurance and capital shortage of all subsidiaries.
b) Effects of capital deduction of insurance participations on tier I capital and tier II
capital, if actually 100% risk weighted.
Capital structure and adequacy

a) Description of individual capital elements, core capital, capital strategy and
approach for assessing capital adequacy.
b) Details of innovative, complex or hybrid financing instruments.
a) Capital requirements in the individual risk areas and capital parameters on a
consolidated basis.
b) Individual components of core capital, items which deduct capital, tier II capital,
tier III capital and other eligible capital.
Risk positions and assessment

General information
a) Information considering core risks of the institutions (credit risk, market risk,
interest rate risk in the banking book, operational risk).
b) Comparison between the current risk profile (ex-ante risk assessment) and the
risks which actually occurred (ex-post assessment) for assessing the reliability and
effectiveness of the procedures chosen for risk management.
c) Consistent information structure is recommended.
Market risk: Standardized approach

a) Details of portfolios which are using the standardized approach, and their
measuring methods.
a) Corresponding capital requirements for the interest rate risk, equity position risk,
foreign exchange risk and commodity risk.
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Operational risk
Qualitative information
a) Details for which approach the bank qualifies.
Interest rate risk in the banking book

a) Description of the risk and control procedure (assumptions regarding customer
behavior, interest shock, backing).
a) Increase or decline in earnings or economic value in the case of upward or
downward rates shocks.
Credit risk: General requirements

a) Definition of overdue, impaired and defaulted loans, general and specific
allowances and statistical methods for their estimation.
a) Break-down of credit volume according to counterparties (rating classes), regions,
industries, risk concentration, maturity and collaterals; non-performing loans.
b) Charges of specific allowances and charge-offs during the period.
c) Break-down of specific allowances according to sectors and regions.
Credit risk: Standardized approach

a) Details via external rating agencies.
b) Details specifying positions for which external ratings are used.
c) Mapping of external ratings to risk classes.
a) Break-down of exposures over the individual risk classes.
Credit risk: Equity holdings in the banking book

a) Differentiation between equities held with the aim of generating a profit and
strategic holding.
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b) Discussion of key valuation and accounting principles for the equities in the
banking book.
a) Details of the (net) book value and current value of the equity, comparison with
market value if listed; type and nature, realized and unrealized profits and losses.
b) Capital requirements for equities for which supervisory transition or
grandfathering provisions are applicable.
Credit risk: Risk reduction techniques

a) Qualitative disclosure requirements for application of credit risk mitigation
techniques (collateral valuation and management, description of guarantees and
credit derivatives, risk concentrations).
b) For every portfolio: the total exposure which is covered by recognized financial
collaterals;
c) For every portfolio: the total exposure which is covered by guarantees or credit
derivatives.
Credit risk: Securitization of loans

a) Qualitative disclosure requirements for securitization of loans (in particular: the
role played by the bank in the securitization process).
b) Summary of accounting policies for securitization activities.
c) Name of rating agencies which are used and the type of securitization.
a) Type and total amount of securitized loans, amount of non-performing loans and
realized losses, securitizations which are retained or bought back (broken down
according to type and risk weighting bands).
b) Total outstanding of securitized revolving exposures, segregated by investor’s
interest and originator’s interest.
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5.13 Conclusion
This chapter discussed about conceptual and legal framework of accounting and reporting
practices of listed companies in general and specifically Islamic banking companies in
Bangladesh. These are the basic foundations of accounting and reporting practices
because these conceptual and legal frameworks regulate the accounting and reporting
practices, and volume of information to be reported to the users of those reports to meet
their information needs. The legal frameworks can be said to be well in standard to
govern the accounting and reporting practices as most of the legal frameworks are
international. Compare to other general or banking companies, Islamic banking
companies are required to comply with more legal requirements such as AAOIFI
standards, IFSB standards, etc. Through the analysis and discussion of conceptual and
legal frameworks, it is supposed to satisfy the objective no. 1 of the study ‘to describe the
legal framework regarding accounting and reporting of the banking sector in
Bangladesh’. The next chapter evaluates the disclosure of Islamic banks in annual reports
and accounts.
112
6.1 Introduction
The main focal aspect of this chapter is to measure and analyze the volume of
information disclosed in the annual report of the Islamic banks. Thirty five annual reports
of the seven full fledged Islamic banks were collected for the sample period of 2006 to
2010. On the basis of 144 items of information classified into 9 different headings, un-
weighted disclosure index (UDI) was constructed for all the Islamic banks. These 144
items included both mandatory and voluntary items reported in the annual reports. The
un-weighted disclosure index (UDI) was constructed after thoroughly studying the annual
reports of the banks to identify the volume of the information they disclosed in the annual
reports. In developing the UDI, dichotomous scoring for each of the 144 score items was
used (disclosure = 1, non-disclosure = 0). Hence, the maximum possible score attained by
a bank was 144 with a minimum theoretical score of 0. Non-disclosure was scored zero
as in the UDI and the values of UDI obtained as a result provided the basic data reported
in this chapter. As stated above the 35 annual reports were collected for all the Islamic
banks, which are listed in DSE and CSE.
6.2 Sample-wise Disclosure Score

6.2 (a) Sample-wise Disclosure Score and its Statistical Explanation
Table: 6.1 showing the sample-wise disclosure score of the sample banks under study
Sample→ Sample-1 Sample-2 Sample-3 Sample-4 Sample-5 Sample-6 Sample-7
2006 89.47 75.38 72.90 77.78 77.76 73.03 67.07
2007 89.47 78.23 74.15 77.78 77.76 73.03 67.07
2008 88.67 79.43 73.40 77.68 77.76 73.98 68.82
2009 88.62 81.18 74.53 79.51 77.76 71.13 69.12
2010 89.62 81.43 74.53 79.51 77.76 71.13 68.92
Mean 89.17 79.13 73.90 78.45 77.76 72.46 68.20

S. D. 0.48 2.473 0.73 0.97 0.00 1.28 1.04
COV 0.54 3.13 0.99 1.24 0.00 1.77 1.52
Minimum 88.62 75.38 72.90 77.68 77.76 71.13 67.07
Maximum 89.62 81.43 74.53 79.51 77.76 73.98 69.12
Source: Computed by the author
The data in Table 6.1 offers some insight into differences in overall patterns of disclosure
in the sample banks. The table shows the sample wise disclosure score of the banks
during the period under study. If we take the means of the UDI as indicator of overall
disclosure levels of the 7 sample banks, disclosure is the highest in case of sample # 1
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and least in case of sample # 7. Overall disclosure might be judged relatively good in all
sample banks as the highest score in sample #1 is 89.62% and lowest score in sample # 7
is 67.07% of the maximum attainable of 144 under the mandatory and voluntary elements
of the index. Highest variation in disclosure has been observed in sample # 2 and no
variation revealed by sample # 5. Sample # 2 shows an increasing trend, sample # 5
shows constant position and others show mixed trend. Highest co-efficient of variation
has been observed in sample # 2 and the lowest co-efficient of variation revealed by
sample # 5.
In order to test our null hypothesis # 1 to see whether there is significant variation in
disclosure score among sample banks, we conducted t test. Accordingly our null
hypothesis is-
H01: There is no significant variation in disclosure score among sample banks.

In order to see whether there is significant difference in disclosure score among the
sample banks, we conducted t tests choosing 2 samples at a time, i.e., using SPSS
Software we conducted paired sample t test. We have found that there are significant
differences in disclosure score among the sample banks. The result of t test, stated in
appendix # 1, reveals that t values are significant in 17 cases out of 21 cases, i.e., in
80.95% of the cases. So, we can comment that our null hypothesis is rejected which
means that there is significant difference in disclosure score among the sample banks.
6.2 (b) Graphical Presentation of Sample-wise Disclosure Score

Graph: 6.1 showing sample-wise disclosure score of the sample banks
100
89.17
90
79.13 78.45 77.76
80 73.9 72.46
68.2
70
Percentage
60
50
40
30
20
10
0
1 2 3 4 5 6 7
Sample
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6.3 Year-wise Disclosure Score of the Sample Islamic Banks
Table: 6.2 showing the year-wise disclosure score of the sample banks under study
Year→ 2006 2007 2008 2009 2010
Sample-1 89.47 89.47 88.67 88.62 89.62
Sample-2 75.38 78.23 79.43 81.18 81.43
Sample-3 72.90 74.15 73.40 74.53 74.53
Sample-4 77.78 77.78 77.68 79.51 79.51
Sample-5 77.76 77.76 77.76 77.76 77.76
Sample-6 73.03 73.03 73.98 71.13 71.13
Sample-7 67.07 67.07 68.82 69.12 68.92
Mean 76.20 76.78 77.11 77.41 77.56

S. D. 6.90 6.84 6.22 6.59 6.95
COV 9.06 8.90 8.07 8.52 8.96
Minimum 67.07 67.07 68.82 69.12 68.92
Maximum 89.47 89.47 88.67 88.62 89.62
Table 6.2 shows the year-wise disclosure score of the sample banks during the period
under study. If we consider the mean of the UDI as indicators of overall disclosure levels
of the years 2006-2010, highest disclosure score has been observed in the year 2010 and
lowest simultaneously in 2006 and 2007.
Overall disclosure might be said to be relatively good in all sample banks as the highest
score in the year 2010 is 89.62% and lowest score in the year 2006 & 2007 is 67.07% of
the maximum attainable of 144 under the mandatory and voluntary elements of the index.
Highest variation in disclosure has been observed in 2010 and lowest variation revealed
in 2008. Highest co-efficient of variation has been observed in 2006 and the lowest co-
efficient of variation revealed by 2008.
In order to examine whether there is significant variation in disclosure score among the
years, we conducted t test. Accordingly our null hypothesis is-
H02: There is no significant variation in disclosure score of the sample banks over the
years under study.
Appendix # 2 provided the year-wise individual t value obtained by t tests. In case of

examining year to year variations in disclosure score we conducted 10 tests and found
that in all the cases t vales were insignificant. So, we can say that our null hypothesis is
115
accepted and that means, there is no variation in year to year disclosure score among
sample banks.
6.4 Increasing Trend of Year-wise Disclosure Score

Graph: 6.2 showing increasing trend of year-wise disclosure score of the sample banks
78
77.5 77.56
77.41
77.11
Percentage
77
76.78
76.5
76.2
76
75.5
Year 2006 2007 2008 2009 2010
Graph 6.2 shows the increasing trend of year-wise disclosure score of the sample banks
during the period under study. If we take the average figure of the UDI as indicator of
overall disclosure of the years 2006-2010, highest average score has been observed in the
year 2010 and the lowest in the year of 2006. Though it is showing an increasing trend,
the percentage of increase is very low. Only 1.36% (77.56-76.20) of overall disclosure
has been increased in 5 years.
6.5 Comparative Disclosure Levels by the sample Islamic Banks

Table: 6.3 showing comparative disclosure levels by the sample banks
Score Range Average of the sample years
% of the total number of items No. of Banks % in the sample
in Disclosure index
Less than 65% - 00.0%
65%-70% 1 14.29%
70%-75% 2 28.57%
75%-80% 3 42.86%
80%-85% - 00.0%
85%-Over 1 14.28%
Total 7 100.00%
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Graph: 6.3 showing comparative disclosure levels by the sample banks
85%-Over,
65%-70%,
14.28%
14.29%
70%-75%,
28.57%
75%-80%,
42.86%

Table 6.3 shows the distribution of disclosure performance by expressing the number of
items disclosed as percentages of the total 144 comprising the disclosure score. Column
one of the table distinguishes ranges of disclosure performances in these terms. The table
shows that 3 banks, that is, 42.86% of the sample banks disclose between 75%-80% and
2 banks that is 28.57% of the sample banks disclose between 70%-75%. Only one bank
of the sample discloses above 85% and one bank discloses between 65%-70% and no
bank discloses less than 65% of the expected disclosure.
6.6 Distribution of the Index Items into Different parts of Annual Reports
In the present study, the disclosure index of 144 items of information showing overall
disclosure has been segregated into nine major groupings/representations parts of banks’
annual report. Appendix # 3 shows the segregation of the overall items into these nine
parts. Table 6.4 shows the standard distribution of the index items into different parts of
annual report.
Table: 6.4 showing distribution of the Index items into different parts of annual reports
Major Parts of Annual Reports Total % of the total items
of information
Company Profile Items (CPI) 7 4.86%
Accounting Policy Items (API) 12 8.33%
Balance Sheet Items (Assets) (BSIA) 18 12.50%
Balance Sheet Items (Liabilities) (BSIL) 15 10.42%
Income Statement Items (Cr.) (ISIC) 9 6.25%
Income Statement Items (Dr.)(ISID) 11 7.64%
Projections and Budgetary Disclosure (PBD) 27 18.75%
Ratios, Statistics and other Details (RSD) 18 12.50%
Measurement and Valuation Method (MVM) 27 18.75%
Total 144 100.00%
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Appendix # 4 has provided the overall individual score received by each of the banks in
the sample as a percentage of the UDI. Again, the overall disclosure score of each sample
has been splited into nine sub-disclosure indices that measure the extent of disclosure of
each section.
6.7 Ranking of the Islami Banks in the Sample
The banks are ranked in order of overall disclosure to show their relative positions in
terms of the un-weighted disclosure score. The highest ranked banking company is Islami
Bank Bangladesh Limited (IBBL). The sample banks were ranked here on the basis of
the value of UDI for each of the banks. Table 6.5 shows the top and least ranked banks by
the size of the UDI. This table has given the insights which banks are disclosing more
information under study.
Table: 6.5 showing ranking on average disclosure score of the sample banks
Name of the Sample Bank Average of Ranks
2006-2010 Under UDI
Islami Bank Bangladesh Limited 89.17 1
Al-Arafah Islami Bank Limited 79.13 2
EXIM Bank of Bangladesh Limited 78.45 3
Shahjalal Islami Bank Limited 77.76 4
Social Islami Bank Limited 73.90 5
ICB Islami Bank Limited 72.46 6
First Security Islami Bank Limited 68.20 7
The table shows that the maximum score is obtained by Islami Bank Bangladesh Limited
followed by Al-Arafah Islami Bank Limited, EXIM Bank of Bangladesh Limited,
Shahjalal Islami Bank Limited, Social Islami Bank Limited, and ICB Islami Bank
Limited. The table shows that the minimum score obtained by First Security Islami Bank
Limited and ranked seventh.
6.8 Average of the scoring (2006-2010)
Table: 6.6 showing the average disclosure score of the various sections of UDI for the period
under study
Sample↓ CPI API BSIA BSIL ISIC ISID PBD RSD MVM
Sample-1 7.00 7.40 14.48 9.39 6.97 8.33 9.00 12.20 14.40
Sample-2 6.00 6.40 13.90 9.21 5.00 6.82 7.40 11.40 13.00
Sample-3 6.00 7.00 10.98 8.32 4.65 6.75 6.20 10.00 14.00
Sample-4 7.00 7.40 10.25 9.55 5.35 5.90 8.00 11.00 14.00
Sample-5 7.00 8.00 9.94 8.07 5.85 6.90 7.00 12.00 13.00
Sample-6 6.20 6.40 10.77 9.17 5.82 6.90 5.20 10.00 12.00
Sample-7 7.00 6.20 10.22 8.49 4.66 6.83 5.80 9.00 10.00
118
Keys of Disclosure
A Company Profile Items CPI = 7
B Accounting Policy Items API = 12
C Balance Sheet Items (Assets) BSIA = 18
D Balance Sheet Items (Liabilities) BSIL = 15
E Income Statement Items (Cr.) ISIC = 9
F Income Statement Items (Dr.) ISID = 11
G Projections and Budgetary Disclosure PBD = 27
H Ratios, Statistics and other Details RSD = 18
I Measurement and Valuation Method MVM = 27
Percentage of the score has been shown in appendix # 4.
6.9 Descriptive Statistics of various sections of Disclosures under UDI

Table: 6.7 showing the descriptive statistics of various sections of disclosure under UDI
Sample↓ CPI API BSIA BSIL ISIC ISID PBD RSD MVM
Sample-1 100.00 61.67 80.44 62.60 77.44 75.73 50.00 45.19 53.33
Sample-2 85.71 53.33 77.22 61.40 55.56 62.00 41.11 42.22 48.15
Sample-3 85.71 58.33 61.00 55.48 51.67 61.36 34.44 37.04 51.85
Sample-4 100.00 61.67 56.94 63.68 59.44 53.64 44.44 40.74 51.85
Sample-5 100.00 66.67 55.22 53.80 65.00 62.73 38.89 44.44 48.15
Sample-6 88.57 53.33 59.83 61.13 64.67 62.73 28.89 37.04 44.44
Sample-7 100.00 51.67 56.78 56.60 51.78 62.09 32.22 33.33 37.04
Mean 94.28 58.10 63.92 59.24 60.79 62.90 38.57 40.00 47.83
S. D. 7.19 5.57 10.41 3.87 9.16 6.51 7.33 4.36 5.63
COV 7.63 9.58 16.29 6.54 15.07 10.35 19.01 10.91 11.79
Minimum 85.71 51.67 55.22 53.80 51.67 53.64 28.89 33.33 37.04
Maximum 100.00 66.67 80.44 63.68 77.44 75.73 50.00 45.19 53.33
The table 6.7 shows the average figure of section-wise disclosure score of the sample
banks during the period under study. If we take the means of the UDI as indicator of
overall disclosure levels of the years 2006-2010, highest disclosure score has been
observed in the section ‘Company Profile Items (CPI)’ and the lowest by ‘Projections and
Budgetary Disclosure (PBD)’. Further if we observe the maximum level of UDI, the
highest disclosure score is shown in the section ‘Company Profile Items (CPI)’ and the
lowest by ‘Ratios, Statistics and Other Details (RSD)‘. In case of minimum level of the
UDI, the highest disclosure score is shown in the section ‘Company Profile Items (CPI)’
and the lowest by ‘Projections and Budgetary Disclosure (PBD)’.
119
Overall disclosure of PBD, RSD, MVM, API and BSIL sections of UDI might be said
relatively low in case of most of the sample under study as the lowest score (PBD)
represents 28.89% of the mandatory and voluntary elements of this section of UDI.
Section BSIA reveals highest variation in section-wise disclosure score and lowest
variation has been observed in case of BSIL. Highest co-efficient of variation is in
section PBD and lowest co-efficient of variation has been observed in BSIL.
6.10 Maximum and Minimum Disclosure Score Presentation

Graph: 6.4 section-wise maximum and minimum disclosure presentation under UDI
120
100 100
85.71
80 80.44 77.44 75.73
Percentage
66.67 63.68
60
51.67 55.22 53.8 51.67 53.64 53.33
50
45.19
40
33.33 37.04
28.89
20
0
Sections of UDI
CPI API BSIA BSIL ISIC ISID PBD RSD MVM

Maximum 100 66.67 80.44 63.68 77.44 75.73 50.00 45.19 53.33
Minimum 85.71 51.67 55.22 53.80 51.67 53.64 28.89 33.33 37.04
The graph 6.4 is showing the section-wise maximum and minimum disclosure score of
various sections of UDI for the sample under study. If we take the maximum and
minimum disclosure score of the sample banks during the period under study, we observe
that the highest maximum disclosure score is shown by the ‘Company Profile Items
(CPI)’ and the lowest maximum by ‘Ratios, Statistics and Other Details (RSD)‘. Further,
we observe that the highest minimum disclosure score is shown in the section ‘Company
Profile Items (CPI)’ and the lowest minimum disclosure score is shown by the
‘Projections and Budgetary Disclosure (PBD)’ section.
120
6.11 Year-wise Disclosure Score Regarding CPI
Table: 6.8 showing the year-wise disclosure score of sample banks regarding company
profile items (CPI).
Year→ 2006 2007 2008 2009 2010
Sample-1 100 100 100 100 100
Sample-2 85.71 85.71 85.71 85.71 85.71
Sample-3 85.71 85.71 85.71 85.71 85.71
Sample-4 100 100 100 100 100
Sample-5 100 100 100 100 100
Sample-6 85.71 85.71 85.71 85.71 100
Sample-7 100 100 100 100 100
Mean 93.88 93.88 93.88 93.88 95.92

S. D. 7.64 7.64 7.64 7.64 6.97
COV 8.14 8.14 8.14 8.14 7.27
Table 6.8 shows the year-wise disclosure score regarding company profile items (CPI) of
the sample banks during the period under study. If we take the means of the UDI as
indicator of disclosure levels of the years 2006-2010, highest disclosure score has been
observed in 2010 and lowest and same score in 2006-2009. Overall disclosure might be
said relatively high in all years as the highest score represents 100% of the maximum
attainable of 7 elements under the UDI and lowest score represents 85.71%. The variation
and co-efficient of variation are also almost same in case of all years.
6.12 Sample-wise Disclosure Score Regarding CPI

Table: 6.9 showing the sample-wise disclosure score of sample banks regarding company
profile items (CPI).
2006 100 85.71 85.71 100 100 85.71 100
2007 100 85.71 85.71 100 100 85.71 100
2008 100 85.71 85.71 100 100 85.71 100
2009 100 85.71 85.71 100 100 85.71 100
2010 100 85.71 85.71 100 100 100 100
Mean 100.00 85.71 85.71 100.00 100.00 88.57 100.00

S. D. .000 .000 .000 .000 .000 6.39 .000
COV 0.00 0.00 0.00 0.00 0.00 7.21 0.00
121
The Table 6.9 shows the sample-wise disclosure score of the banks regarding CPIs during
the period under study. The data in the table offers some insights into differences in
disclosure regarding CPIs in the sample banks. If we take the means of the UDI as
indicator of disclosure levels of the 7 sample banks, disclosure is highest in case of
sample # 1, 4, 5 and 7 and least in case of sample # 2 and 3. Overall disclosure might be
judged relatively high in all sample banks as the highest score in case of sample # 1, 4, 5
and 7 represents 100.00% of the maximum attainable of 7 elements of the index. There is
no variation in disclosure of the sample banks except sample # 6 where standard
deviation is 6.39 and co-efficient of variation is 7.21.
6.13 Year-wise Disclosure Score Regarding API

Table: 6.10 showing the year-wise disclosure score of sample banks regarding accounting
policy items (API).
Year→ 2006 2007 2008 2009 2010
Sample-1 58.33 58.33 58.33 66.67 66.67
Sample-2 50 50 50 58.33 58.33
Sample-3 58.33 58.33 58.33 58.33 58.33
Sample-4 58.33 58.33 58.33 66.67 66.67
Sample-5 66.67 66.67 66.67 66.67 66.67
Sample-6 50 50 58.33 58.33 50
Sample-7 50 50 58.33 50 50
Mean 55.95 55.95 58.33 60.71 59.52

S. D. 6.30 6.30 4.81 6.30 7.50
COV 11.26 11.26 8.25 10.38 12.60
Table 6.10 shows the year-wise disclosure score regarding accounting policy items (API)
of the sample banks during the period under study. If we take the means of the UDI as
indicator of disclosure levels of the years 2006-2010, highest disclosure score has been
observed in 2009 and the lowest in 2006 and 2007.
The disclosure of APIs might be said to be relatively low in all years as the highest score
represents 60.71% of the maximum attainable of 12 elements under the UDI and lowest
score represents 55.95%. Highest variation in yearly disclosure is revealed by the year
2010 and lowest variation has been observed in 2008. Highest co-efficient of variation
has been observed in case of 2010 and the lowest co-efficient of variation has been
observed in case of 2008.
122
6.14 Sample-wise Disclosure Score Regarding API
Table: 6.11 showing the sample-wise disclosure score of sample banks regarding
accounting policy items (API).
2006 58.33 50 58.33 58.33 66.67 50 50
2007 58.33 50 58.33 58.33 66.67 50 50
2008 58.33 50 58.33 58.33 66.67 58.33 58.33
2009 66.67 58.33 58.33 66.67 66.67 58.33 50
2010 66.67 58.33 58.33 66.67 66.67 50 50
Mean 61.67 53.33 58.33 61.67 66.67 53.33 51.67

S. D. 4.57 4.56 0.00 4.57 0.00 4.56 3.73
COV 17.58 17.54 0.00 17.58 0.00 17.54 14.35
The data in Table 6.11 shows the sample-wise disclosure score of the banks regarding
APIs during the period under study. The data in the table offers some insights into
differences in disclosure regarding APIs in the sample banks. If we take the means of the
UDI as indicator of disclosure levels of the 7 sample banks, disclosure is highest in case
of sample # 5 and least in case of sample # 2 and 6.
Overall disclosure regarding API might be judged relatively low in all sample banks as
the highest score in case of sample # 5 represents 66.67% and the lowest score in case of
sample # 7 represents 51.67% of the maximum attainable of 12 elements of the index.
There is no variation in disclosure of the sample # 3 and 5 and remaining samples show
almost same variation. Highest co-efficient of variation has been observed in case of
sample # 1 and 4 and the no co-efficient of variation has been observed in case of sample
3 and 5.
6.15 Year-wise Disclosure Score Regarding BSIA

Table: 6.12 showing the year-wise disclosure score of sample banks regarding Balance
Sheet Items-Assets (BSIA).
Year→ 2006 2007 2008 2009 2010
Sample-1 82.67 82.67 82.67 77.11 77.11
Sample-2 74.56 80.67 80.67 75.11 75.11
Sample-3 61.44 61.44 61.44 60.33 60.33
Sample-4 59.5 59.5 58.94 53.39 53.39
Sample-5 55.22 55.22 55.22 55.22 55.22
Sample-6 62.28 62.28 62.28 56.17 56.17
Sample-7 58.78 58.78 58.78 53.78 53.78
Mean 64.92 65.79 65.71 61.59 61.59
S. D. 9.90 11.09 11.15 10.19 10.19
COV 15.25 16.86 16.97 16.54 16.54
123
Table 6.12 shows the year-wise disclosure score regarding Balance Sheet Items-Assets
(BSIA) of the sample banks during the period under study. If we take the means of the
UDI as indicator of disclosure levels of the years 2006-2010, highest disclosure score has
been observed in 2007 and the lowest in 2009 and 2010.
The disclosure of BSIAs might be said to be relatively low in all years as the highest
score represents 65.79% of the maximum attainable of 18 elements under the UDI and
lowest score represents 61.59%. Highest variation in yearly disclosure is revealed by the
year 2008 and lowest variation has been observed in 2006. Highest co-efficient of
variation has been observed in case of 2008 and the lowest co-efficient of variation has
been observed in case of 2006.
6.16 Sample-wise Disclosure Score Regarding BSIA

Table: 6.13 showing the sample-wise disclosure score of sample banks regarding Balance
Sheet Items-Assets (BSIA).
2006 82.67 74.56 61.44 59.50 55.22 62.28 58.78
2007 82.67 80.67 61.44 59.50 55.22 62.28 58.78
2008 82.67 80.67 61.44 58.94 55.22 62.28 58.78
2009 77.11 75.11 60.33 53.39 55.22 56.17 53.78
2010 77.11 75.11 60.33 53.39 55.22 56.17 53.78
Mean 80.45 77.22 61.00 56.94 55.22 59.84 56.78
S. D. 3.05 3.15 0.61 3.25 0.00 3.35 2.74
COV 3.79 4.08 1.00 5.71 0.00 5.60 4.83
BSIA during the period under study. The data in the table offers some insights into
differences in disclosure regarding BSIA of the sample banks. If we take the means of the
UDI as indicator of disclosure levels of the 7 sample banks, disclosure is highest in case
of sample # 1 and least in case of sample # 5.
Overall disclosure regarding BSIA might be judged relatively low in most of the sample
banks though sample # 1 and 2 disclose near about 80% but other sample banks disclose
only near about or below 60% of the maximum attainable of 18 elements of the index.
There is no variation in disclosure of the sample # 5 and highest variation has been
observed in case of sample # 6. Highest co-efficient of variation has been observed in
124
case of sample # 4 and the no co-efficient of variation has been observed in case of
sample # 5. Almost all the sample show decreasing trend in disclosing BSIA.
6.17 Year-wise Disclosure Score Regarding BSIL
Table: 6.14 showing the year-wise disclosure score of sample banks regarding balance
sheet items-liabilities (BSIL).
Year→ 2006 2007 2008 2009 2010
Sample-1 63.27 63.27 63.27 61.60 61.60
Sample-2 57.73 59.40 59.40 64.40 66.07
Sample-3 53.27 54.93 54.93 57.13 57.13
Sample-4 58.80 58.80 58.80 71.00 71.00
Sample-5 53.80 53.8 53.80 53.80 53.80
Sample-6 60.47 60.47 60.47 62.13 62.13
Sample-7 54.93 54.93 59.93 58.27 54.93
Mean 57.47 57.94 58.66 61.19 60.95
S. D. 3.70 3.49 3.27 5.59 6.20
COV 6.44 6.02 5.57 9.14 10.17
Table 6.14 shows the year-wise disclosure score regarding Balance Sheet Items-
Liabilities (BSIL) of the sample banks during the period under study. If we take the
means of the UDI as indicator of disclosure levels of the years 2006-2010, highest
disclosure score has been observed in 2009 and the lowest in 2006.
The disclosure of BSILs might be said to be relatively low in all years as the highest
score represents 61.19% of the maximum attainable of 15 elements under the UDI and
lowest score represents 57.47%. Highest variation in yearly disclosure is revealed by the
year 2010 and lowest variation has been observed in 2008. Highest co-efficient of
been observed in case of 2008.
6.18 Sample-wise Disclosure Score Regarding BSIL

Table: 6.15 showing the sample-wise disclosure score of sample banks regarding balance
sheet items-liabilities (BSIL).
2006 63.27 57.73 53.27 58.80 53.80 60.47 54.93
2007 63.27 59.40 54.93 58.80 53.80 60.47 54.93
2008 63.27 59.40 54.93 58.80 53.80 60.47 59.93
2009 61.60 64.40 57.13 71.00 53.80 62.13 58.27
2010 61.60 66.07 57.13 71.00 53.80 62.13 54.93
Mean 62.60 61.40 55.48 63.68 53.80 61.13 56.60
S. D. 0.91 3.62 1.65 6.68 0.00 0.91 2.36
COV 1.45 5.90 2.97 10.49 0.00 1.49 4.17
125
The data in Table 6.15 offers some insights into differences in disclosure regarding BSIL
in the sample banks. The table shows the sample-wise disclosure score of the banks
regarding BSIL during the period under study. If we take the means of the UDI as
sample # 4 and least in case of sample # 5.
Overall disclosure regarding BSIL might be judged relatively low in all sample banks as
the highest score in case of sample # 4 represents 63.68% and the lowest score in case of
sample # 5 represents 53.80% of the maximum attainable of 18 elements of the index.
There is no variation in disclosure of the sample # 5 and highest variation has been
observed in case of sample # 4. Highest co-efficient of variation has been observed in
case of sample # 4 and the no co-efficient of variation has been observed in case of
sample # 5. Sample # 2, 3, 4 and 6 show increasing trend in disclosing BSIL.
6.19 Year-wise Disclosure Score Regarding ISIC

Table: 6.16 showing the year-wise disclosure score of sample banks regarding income
statement items-Cr. (ISIC).
Year→ 2006 2007 2008 2009 2010
Sample-1 76.11 76.11 78.33 78.33 78.33
Sample-2 51.11 56.67 56.67 56.67 56.67
Sample-3 51.67 51.67 51.67 51.67 51.67
Sample-4 59.44 59.44 59.44 59.44 59.44
Sample-5 65.00 65.00 65.00 65.00 65.00
Sample-6 65.00 65.00 64.44 64.44 64.44
Sample-7 51.11 51.11 51.11 53.89 51.67
Mean 59.92 60.71 60.95 61.35 61.03

S. D. 9.46 8.81 9.44 9.00 9.34
COV 15.79 14.51 15.49 14.67 15.30
Table 6.16 shows the year-wise disclosure score regarding Income Statement Items-Cr.
(ISIC) of the sample banks during the period under study. If we take the means of the
been observed in 2009 and the lowest in 2006.
The disclosure of ISICs might be said to be relatively low in all years as the highest score
126
2006 and lowest variation has been observed in 2007. Highest co-efficient of variation
has been observed in case of 2006 and the lowest co-efficient of variation has been
observed in case of 2008.
6.20 Sample-wise Disclosure Score Regarding ISIC

Table: 6.17 showing the sample-wise disclosure score of sample banks regarding income
statement items-Cr. (ISIC).
2006 76.11 51.11 51.67 59.44 65.00 65.00 51.11
2007 76.11 56.67 51.67 59.44 65.00 65.00 51.11
2008 78.33 56.67 51.67 59.44 65.00 64.44 51.11
2009 78.33 56.67 51.67 59.44 65.00 64.44 53.89
2010 78.33 56.67 51.67 59.44 65.00 64.44 51.67
Mean 77.44 55.56 51.67 59.44 65.00 64.66 51.78

S. D. 1.22 2.49 0.00 0.00 0.00 0.31 1.21
COV 1.58 4.48 0.00 0.00 0.00 0.48 2.34
The data in Table 6.17 offers some insights into differences in disclosure regarding ISIC
regarding ISIC during the period under study. If we take the means of the UDI as
Overall disclosure regarding ISIC might be judged relatively low in all sample banks
except sample # 1 which disclose 77.44%, remaining samples disclose below 65% and
the lowest score in case of sample # 3 represents 51.67% of the maximum attainable of 9
elements of the index. There is no variation in disclosure of the sample # 3 and 5 and
highest variation has been observed in case of sample # 2. Highest co-efficient of
variation has been observed in case of sample # 2 and the no co-efficient of variation has
been observed in case of sample # 3, 4 and 5. Most of the samples show constant trend in
disclosing ISIC.
127
6.21 Year-wise Disclosure Score Regarding ISID
Table: 6.18 showing the year-wise disclosure score of sample banks regarding income
statement items-Dr. (ISID).
Year→ 2006 2007 2008 2009 2010
Sample-1 75 75 75 76.82 76.82
Sample-2 60.91 60.91 62.73 62.73 62.73
Sample-3 65.45 65.45 58.64 58.64 58.64
Sample-4 53.64 53.64 53.64 53.64 53.64
Sample-5 62.73 62.73 62.73 62.73 62.73
Sample-6 62.73 62.73 62.73 62.73 62.73
Sample-7 60.45 60.45 60.45 62.27 66.82
Mean 62.99 62.99 62.27 62.79 63.44

S. D. 6.44 6.44 6.50 7.05 7.20
COV 10.22 10.22 10.44 11.23 11.35
Table 6.18 shows the year-wise disclosure score regarding Income Statement Items-Dr.
(ISID) of the sample banks during the period under study. If we take the means of the
been observed in 2010 and the lowest in 2008.
The disclosure of ISIDs might be said to be relatively low in all years as the highest score
2010 and lowest variation has been observed in 2006 and 2007. Highest co-efficient of
been observed in case of 2006 and 2007.
6.22 Sample-wise Disclosure Score Regarding ISID

Table: 6.19 showing the sample -wise disclosure score of sample banks regarding income
statement items-Dr. (ISID).
2006 75.00 60.91 65.45 53.64 62.73 62.73 60.45
2007 75.00 60.91 65.45 53.64 62.73 62.73 60.45
2008 75.00 62.73 58.64 53.64 62.73 62.73 60.45
2009 76.82 62.73 58.64 53.64 62.73 62.73 62.27
2010 76.82 62.73 58.64 53.64 62.73 62.73 66.82
Mean 75.73 62.00 61.36 53.64 62.73 62.73 62.09

S. D. 1.00 1.00 3.73 0.00 0.00 0.00 2.76
COV 1.32 1.61 6.08 0.00 0.00 0.00 4.45
128
The data in Table 6.19 offers some insights into differences in disclosure regarding ISID
regarding ISID during the period under study. If we take the means of the UDI as
Overall disclosure regarding ISID might be judged relatively low in all sample banks
except sample # 1 which disclose 75.73%, remaining samples disclosed below 65% and
the lowest score in case of sample # 4 represents 53.64% of the maximum attainable of
11 elements of the index. There is no variation in disclosure of the sample # 4, 5 and 6
and highest variation has been observed in case of sample # 3. Highest co-efficient of
variation has been observed in case of sample # 3 and no co-efficient of variation has
been observed in case of sample # 4, 5 and 6. Sample # 1, 2, 3, and 7 show increasing
trend and remaining samples show constant trend in disclosing ISIC.
6.23 Year-wise Disclosure Score Regarding PBD

Table: 6.20 showing the year-wise disclosure score of sample banks regarding projections
and budgetary disclosure (PBD)
Year→ 2006 2007 2008 2009 2010
Sample-1 50.00 50.00 50.00 50.00 50.00
Sample-2 33.33 38.89 44.44 44.44 44.44
Sample-3 27.78 33.33 33.33 38.89 38.89
Sample-4 44.44 44.44 44.44 44.44 44.44
Sample-5 38.89 38.89 38.89 38.89 38.89
Sample-6 33.33 33.33 33.33 22.22 22.22
Sample-7 27.78 27.78 27.78 38.89 38.89
Mean 36.51 38.09 38.89 39.68 39.68

S. D. 8.40 7.47 7.86 8.74 8.74
COV 23.01 19.61 20.21 22.03 22.03
Table 6.20 shows the year-wise disclosure score regarding Projections and Budgetary
Disclosure (PBD) of the sample banks during the period under study. If we take the
means of the UDI as indicator of disclosure levels of the years 2006-2010, highest
disclosure score has been observed in 2009 and 2010 and the lowest in 2006.
129
The disclosure of PBDs might be said to be relatively too low in all years where the
scenario is showing the score below 40% and the highest score represents 39.68% of the
maximum attainable of 18 elements under the UDI and lowest score represents 36.51%.
Highest variation in yearly disclosure is revealed by the year 2009 and 2010 and lowest
variation has been observed in 2007. Highest co-efficient of variation has been observed
in case of 2006 and the lowest co-efficient of variation has been observed in case of
2007.
6.24 Sample-wise Disclosure Score Regarding PBD

Table: 6.21 showing the sample -wise disclosure score of sample banks regarding
2006 50.00 33.33 27.78 44.44 38.89 33.33 27.78
2007 50.00 38.89 33.33 44.44 38.89 33.33 27.78
2008 50.00 44.44 33.33 44.44 38.89 33.33 27.78
2009 50.00 44.44 38.89 44.44 38.89 22.22 38.89
2010 50.00 44.44 38.89 44.44 38.89 22.22 38.89
Mean 50.00 41.11 34.44 44.44 38.89 28.89 32.22

S. D. 0.00 4.97 4.65 0.00 0.00 6.09 6.09
COV 0.00 12.09 13.50 0.00 0.00 21.08 18.90
PBD during the period under study. The table offers some insights into differences in
disclosure regarding PBD in the sample banks. If we take the means of the UDI as
Overall disclosure regarding PBD might be judged very low in all sample banks as the
highest score in sample # 1 represents only 50.00%, and the lowest score in case of
sample # 6 represents only 28.89% of the maximum attainable of 18 elements of the
index. There is no variation in disclosure of the sample # 1, 4, and 5 and highest variation
has been observed in case of sample # 6 and 7. Highest co-efficient of variation has been
observed in case of sample # 6 and the no co-efficient of variation has been observed in
case of sample # 1, 4, and 5. Sample # 2, 3, and 7 show increasing trend and sample # 1,
4, and 5 show constant trend in disclosing PBD.
130
6.25 Year-wise Disclosure Score Regarding RSD
Table: 6.22 showing the year-wise disclosure score of sample banks regarding ratios,
Year→ 2006 2007 2008 2009 2010
Sample-1 44.44 44.44 44.44 44.44 48.15
Sample-2 40.74 40.74 40.74 44.44 44.44
Sample-3 37.04 37.04 37.04 37.04 37.04
Sample-4 40.74 40.74 40.74 40.74 40.74
Sample-5 44.44 44.44 44.44 44.44 44.44
Sample-6 37.04 37.04 37.04 37.04 37.04
Sample-7 33.33 33.33 33.33 33.33 33.33
Mean 39.68 39.68 39.68 40.21 40.74
S. D. 4.12 4.12 4.12 4.50 5.24
COV 10.38 10.38 10.38 11.19 12.86
Table 6.22 shows the year-wise disclosure score regarding Ratios, Statistics and other
Details (RSD) of the sample banks during the period under study. If we take the means of
the UDI as indicator of disclosure levels of the years 2006-2010, highest disclosure score
has been observed in 2010 and the lowest by 2006 through 2008.
The disclosure of RSDs might be said to be relatively too low in all years where the
scenario is showing the score near about 40% and the highest score represents 40.74% of
the maximum attainable of 27 elements under the UDI and lowest score represents
39.68%. Highest variation in yearly disclosure is revealed by the year 2010 and lowest
variation has been observed in 2006 through 2008. Highest co-efficient of variation has
been observed in case of 2010 and the lowest and same co-efficient of variation has been
observed in case of 2006 through 2008.
6.26 Sample-wise Disclosure Score Regarding RSD

Table: 6.23 showing the sample-wise disclosure score of sample banks regarding ratios,
2006 44.44 40.74 37.04 40.74 44.44 37.04 33.33
2007 44.44 40.74 37.04 40.74 44.44 37.04 33.33
2008 44.44 40.74 37.04 40.74 44.44 37.04 33.33
2009 44.44 44.44 37.04 40.74 44.44 37.04 33.33
2010 48.15 44.44 37.04 40.74 44.44 37.04 33.33
Mean 45.18 42.22 37.04 40.74 44.44 37.04 33.33
S. D. 1.66 2.03 0.00 0.00 0.00 0.00 0.00
COV 3.67 4.81 0.00 0.00 0.00 0.00 0.00
131
RSD during the period under study. The table offers some insights into differences in
disclosure regarding RSD in the sample banks. If we take the means of the UDI as
Overall disclosure regarding RSD might be judged to be very low in all sample banks as
the highest score in sample # 1 represents only 45.18%, and the lowest score in case of
index. There is no variation in disclosure of the sample # 3 through 7 and highest
variation has been observed in case of sample # 2. Highest co-efficient of variation has
been observed in case of sample # 2 and the no co-efficient of variation has been
observed in case of sample # 3 through 7. Sample # 1 and 2 show increasing trend and
remaining samples show constant trend in disclosing RSD.
6.27 Year-wise Disclosure Score Regarding MVM

Table: 6.24 showing the year-wise disclosure score of sample banks regarding
Year→ 2006 2007 2008 2009 2010
Sample-1 55.56 55.56 51.85 51.85 51.85
Sample-2 48.15 48.15 48.15 48.15 48.15
Sample-3 51.85 51.85 51.85 51.85 51.85
Sample-4 51.85 51.85 51.85 51.85 51.85
Sample-5 48.15 48.15 48.15 48.15 48.15
Sample-6 44.44 44.44 44.44 44.44 44.44
Sample-7 37.04 37.04 37.04 37.04 37.04
Mean 48.15 48.15 47.62 47.62 47.62

S. D. 6.05 6.05 5.42 5.42 5.42
COV 12.56 12.56 11.38 11.38 11.38
Table 6.24 shows the year-wise disclosure score regarding Measurement and Valuation
Method (MVM) of the sample banks during the period under study. If we take the means
of the UDI as indicator of disclosure levels of the years 2006-2010, highest and same
disclosure score (48.15) has been observed in 2006 and 2007 and the lowest (47.62) in
2008 through 2010.
132
The disclosure of MVMs might be said to be relatively too low in all years where the
scenario is showing the score below 50% and the highest score represents 48.15% of the
maximum attainable of 27 elements under the UDI and lowest score represents 47.62%.
Highest and same variation in yearly disclosure is revealed by the year 2006 and 2007
and lowest and same variation has been observed in 2008 through 2010. Highest and
same co-efficient of variation has been observed in case of 2006 and 2007 and the lowest
and same co-efficient of variation have been observed in case of 2008 through 2010.
6.28 Sample-wise Disclosure Score Regarding MVM

Table: 6.25 showing the sample-wise disclosure score of sample banks regarding
2006 55.56 48.15 51.85 51.85 48.15 44.44 37.04
2007 55.56 48.15 51.85 51.85 48.15 44.44 37.04
2008 51.85 48.15 51.85 51.85 48.15 44.44 37.04
2009 51.85 48.15 51.85 51.85 48.15 44.44 37.04
2010 51.85 48.15 51.85 51.85 48.15 44.44 37.04
Mean 53.33 48.15 51.85 51.85 48.15 44.44 37.04

S. D. 2.03 0.00 0.00 0.00 0.00 0.00 0.00
COV 3.81 0.00 0.00 0.00 0.00 0.00 0.00
The data in Table 6.25 depicts the sample-wise disclosure score of the banks regarding
MVM during the period under study. The table offers some insights into differences in
disclosure regarding MVM in the sample banks. If we take the means of the UDI as
Overall disclosure regarding MVM might be judged to be very low in all sample banks as
the highest score in sample # 1 represents only 53.33%, and the lowest score in case of
index. There is no variation in disclosure of all the samples except sample # 1 where the
variation and co-efficient of variation is also low. Almost all the samples show constant
trend in disclosing MVM.
133
6.29 Graphical Presentation of the extent of different sections of disclosure
Graph 6.5 showing average disclosure score of various sections of UDI of the sample
banks under study
100 94.28
90
80
70 63.92 62.9
58.1 59.24 60.79
Percentage
60
47.83
50
38.57 40
40
30
20
10
0
UDI Sections CPI API BSIA BSIL ISIC ISID PBD RSD MVM
The graph 6.5 is showing the average disclosure score of various sections of UDI of the
sample banks under study. If we take the mean of the disclosure score of the sample
banks during the period under study, we observe that highest disclosure score was shown
by the ‘Company Profile Item (CPI)’ and the lowest disclosure score was shown by the
‘Projections and Budgetary Disclosure (PBD)’ section. If we take 60% of disclosure as
indicator of standard level, only 4 sections of UDI have the standard score. So, we can
comment that overall disclosure might be judged relatively low or below standard.
6.30 Items of Information disclosed by all the Sample Islamic Banks
Table: 6.26 showing items reported by all Islamic banks in annual reports
1 Company Profile Items (CPI)
1. Name of the Bank
2. Corporate headquarters
3. Date of Incorporation
4. Bank’s audit firm(s)
5. Corresponding figures of preceding period
2 Accounting Policy Items (API)
6. Basis of Accounting
7. Consolidated policy
8. Methods of Revenue Recognition
9. Reporting currency
10. Basis of measurement (Historical or other)
11. Methods of calculating EPS
3 Balance Sheet Items (Assets) (BSIA)
12. Details about quick assets
134
(i) Cash in hand
(ii) Balance with Bangladesh Bank
(iii) Balance with other banks and financial institutions- In Bangladesh
(iv) Balance with other banks and financial institutions- Outside Bangladesh
13. Money at call and short notice
14. Cash and cash equivalents
15. Accruals and deferred income
16. National Investment Bonds (Bangladesh Govt. Islamic Invest. Bond)
17. Classification of fixed assets
18. Branch adjustments
19. Non-banking assets
20. Details about Investments
(i) Cash Investments- In and Outside Bangladesh
(ii) Bills discounted and purchased-Payable In and Outside Bangladesh
(iii) Investment to customers
(iv) Classification amount
(v) Doubtful amount
(vi) Bad amount
(vii) Loan taken by directors and officers of the banking company
(viii) Information about security of investment
4 Balance Sheet Items (Liabilities) (BSIL)
21. Details about shareholders’ interest-
(i) Issued capital
(ii) Shareholders’ equity or paid up capital
22. Information as to Provisions
23. Information as to-
(i) Statutory Reserve
(ii) Surplus of P/L A/c
(iii) Commitments-Directors
(iv) Commitments-Contingent liabilities
24. Information as to principal deposits-
(i) Current deposits and other accounts
(ii) Fixed deposits and customers’ deposits
(iii) Savings bank deposits
25. Information about-
(i) Balances with the Central Bank
(ii) Placement with other Banks
(i) Bills payable
(ii) Trade and other payable
(iii) Income tax payable
27. Details as to proposed dividend
5 Income Statement Items (Cr.) (ISIC)
28. Details as to profit and similar Income
29. Income from balances with other banks/ financial institutions
30. Information as to-Fees earned as services are provided
31. details as to income from investment
(i) Profit from ordinary activities
(ii) Profit from invested shares
(iii) Dividend income
33. Information on income from rent, taxes, insurance, license fees, royalties and other operating
income
6 Income Statement Items (Dr.)(ISID)
(i) Salaries, allowances and fees
135
(ii) Stationary, Postage, Stamp etc. and General administrative expenses
(iii) Printing and Advertisement expenses
(iv) Internet, Telegram, Telephone and Communication expenses
(v) Fees and communication expenses
(i) Legal expenses
(ii) Taxes on income
36. Information as to auditors fees
37. Information as to dividend paid for the period
38. Information as to provision for classified investments and advances
39. Details as to depreciation of fixed assets
40. Information as to
(i) Profit paid and similar charges
(ii) Tax expenses for the period
(i) Information about amount spent on humans resources
(ii) Charitable donations
7 Projections and Budgetary Disclosure (PBD)
42. Information about employee social welfare scheme
43. Information about cash inflow
44. Information about cash outflow
45. Information relating to sale of property and other assets
8 Ratios, Statistics and other Details (RSD)
46. Information about ratios indicating profitability-
(i) EPS
(ii) Return on investment (ROI)
(iii) Return on Assets (ROA)
47. Comparative Income statement (at least one year)
48. Comparative Balance Sheet (at least one year)
49. Review of the year and prospects for the future
50. No. of Shareholder and shares held by them
51. Information on number of employees
9 Measurement and Valuation Method (MVM)
52. Amount of Depreciation
53. Methods used in calculating depreciation
54. Depreciation policy
55. Rate of Depreciation
56. Disclosure about appropriation of retained earnings
6.31 Items not disclosed by any Sample Islamic Banks

Table: 6.27 showing items not reported by any Islamic banks in annual reports
1 Accounting Policy Items (API)
1. Changes in Accounting Policy and their cumulative effects
2. Changes in Accounting Estimates
3. Disclosure of monetary impact of any changes in accounting policy
2 Balance Sheet Items (Assets) (BSIA)
4. Treasury bills and other bills eligible for rediscounting with BB
5. Treasury Bills
6. Prize Bonds
7. Debenture
8. Gold
9. Worthless stock
10. Assets acquired in satisfaction of claims
11. Information about security of loan on behalf of investment taken by directors and officers of
136
the banking company
12. Information as to intangible assets-Goodwill
3 Balance Sheet Items (Liabilities) (BSIL)
(i) Pension or insurance funds
(ii) Nature and amount of security given
(iii) Non-current profit-bearing liabilities
(iv) Conversion Features
14. Information relating to-Unclaimed dividends
4 Income Statement Items (Cr.) (ISIC)
15. Interest/income from bills and treasury bills
16. Fees earned on the execution of a significant work
17. Fees from the development of customized software
5 Income Statement Items (Dr.)(ISID)
(i) Foreign exchange loss
(ii) Loss from ordinary activities
19. Disclosure as to-
(i) Extraordinary Items-Loss on expropriation of car engine
(ii) Extraordinary Items-Insurance Proceeds from earthquake disaster settlement
(i) Loss from sale of or dealing with non-banking assets
6 Projections and Budgetary Disclosure (PBD)
21. Disclosure as to loss on unusual Items
22. Disclosure as to provision for diminution in the value of investment
23. Information about number of days in strike by the employers (yearly)
24. Information about number of cases filed for recovery of investment
25. Information relation to transfer of research and development
26. Inflation adjusted accounts
27. Information about Tax refunds receivable
7 Ratios, Statistics and other Details (RSD)
28. Information about ratios indicating profitability-Return on capital employed
Information about ratios indicating solvency
29. Debt-Equity Ratio
30. Debt to Total Capital Ratio
31. Debt to Total Assets Ratio
32. Proprietary Ratio
33. Capital Gearing Ratio
34. Profit Coverage Ratio
35. Dividend Coverage Ratio
36. Total Coverage Ratio
37. Cash Flow Coverage Ratio
Information relating to statistics and other details
38. Cash Budgeting Projection up to 5 years
39. Forecast of next year’s earnings
8 Measurement and Valuation Method (MVM)
40. Estimated useful life and change in estimate (if any)
41. The reason for change in method and rate of depreciation
42. The reasons and profit and tax effect for the change
43. Consistency of useful lives of assets
44. The nature and amount of commitments to extent investment that are irrecoverable
45. Disclosure of significant concentration of assets and liabilities and off balance sheet
items in terms of geographical areas, customer or industry groups or other concentration
risks
137
6.32 Summary and conclusion
This chapter revealed the results of the annual report of the seven sample banks. Despite
their common regulatory roots, differences in disclosure patterns can be observed
between the sample banking companies. First Security Islami Bank Limited appeared to
have the lowest levels of disclosure and Islami Bank Bangladesh Limited appeared to
have the highest levels of disclosure. The sample banks here ranked on the basis of the
value of un-weighted disclosure index (UDI). Table 6.5 shows the top and bottom ranked
banks by the size of the UDI. The main reason behind preparing this table is to reveal
which banks are disclosing more information in the study period. When all the samples
were analyzed, different patterns of the determinants of disclosure were observed among
the samples. This chapter also reports the number of items universally disclosed or
entirely excluded from disclosures by the sample banks. The above tables, discussion and
graphs are supposed to be sufficient to achieve the objective no. 2 of the study, to
examine the present status of accounting and reporting practices in the Islamic banks in
Bangladesh. The following chapter examines whether there is any relationship between
industry attributes and volume of disclosure by Islamic banks in Bangladesh.
138
7.1 Introduction
The purpose of this chapter is to examine the relationship between a number of industry
attributes and the level of disclosure of the Islamic banks in Bangladesh. The industry
attributes considered in the study are size measured by total assets (TA), gross revenue
(GR), and number of branches (NOB), age of the bank (AGE), profitability measured by
EPS, ROA, ROI, and net profit margin (NPM), investment deposit ratio (IDR), capital
adequacy ratio (CAR), and debt equity ratio (DER). The Un-weighted Disclosure Index
(UDI) has been calculated for each of the sample banks under study and these have been
used as the dependent variables. The UDI has been arrived at by aggregating the number
of disclosed items in each annual report by using a dichotomous approach where a bank
were awarded ‘1’ for disclosing an item and if not, has been awarded ‘0’, so that the total
number of items disclosed in the annual report becomes equal to the total score obtained
by the bank.
The ultimate objective of this chapter is to justify whether there is any relationship
between the industry attributes and the level of disclosure of the sample banks. In order to
identify the determinants of disclosure, regression analysis, multiple linear regression
techniques have been used. The analysis and discussion of the previous chapter have
already proved that the level of disclosure varies across banks and across various sections
of annual reports of the banks. This chapter has been arranged having in mind that the
selected industry attributes may significantly associated with the level of disclosure.
7.2 Disclosure Studies of some Researchers and Their Results about Relationship
Some researchers have tried to reveal a relationship between a number of industry
attributes and the level of disclosure in the annual report. However, some of the industry
attributes have shown significant relationship with the level of disclosure while other
researchers did not find any relationship between them. The following Table 7.1
identifies the industry attributes used by the researchers and indicates whether
relationships have been proved with respect to disclosure in a particular country or
countries:
139
Table: 7.1 showing previous studies on disclosure, Independent Variables and their
results
Resear Coun Independent Variables Significant Relationship No Significant
chers try Relationship
1. Size of the firm (total Significant relationship -
Uwalom
Nigeria
(2011)
assets) between Size of the firm

wa
2. Profitability (ROA) (total assets), Profitability

3. Audit firm size (ROA), Audit firm size.
1. Earning Per Share Significant relationship No significant
Hossain (2010)
2. Return on Assets between net profit margin association between

Bangladesh
3. Return on Equity (NPM) and the extent of earning per share,

4. Net Profit Margin disclosure in annual report of return on assets,
5. Gross Revenue the companies. return on equity,
gross revenue and
extent of disclosure.
1. Size (total sales) Significant relationship No significant
2. Leverage ratio between leverage, ownership relationship between
Sutthachai and Cooke
3. Profitability ratio (ROA) concentration and managerial size, Profitability

4. Ownership ownership. ratio (ROA),
Thailand
(2009)
5. Managerial ownership Auditor, Agribusi-

6. Auditor ness, Industry type,
7. Agribusiness Consumer goods, and
8. Industry type Service sector.
9. Consumer goods, and
10. Service sector
1. Total Assets Significant relationship No significant
2. Gross Revenue between return on assets relationship between
3. Number of Branches (ROA) and capital adequacy total assets, gross
4. Earning Per Share ratio (CAR) and the extent of revenue, number of
Ahmed (2009)
5. Return on Assets disclosure in annual report of branches, earning per

Bangladesh
6. Return on Investment the companies. share, return on

7. Net Profit Margin investment, net profit
8. Credit-Deposit Ratio margin, credit-
9. Capital Adequacy Ratio deposit ratio, debt-
10. Debt-Equity Ratio equity ratio,
11. Shareholders’ Risk Ratio shareholders’ risk
ratio and extent of
disclosure.
1. Financial institutions type Significant relationship No significant
2. Auditor type between financial institutions association between
3. Multinational corporation and auditor type, leverage, return on
Sejjaaka (2007)
status multinational corporation equity and liquidity

Uganda
4. Size, and status, size and number of and disclosure level.

5. Number of years in years in operation (age) and
operation (age) disclosure level.
6. Leverage
7. ROE
8. Liquidity
140
1. Ownership structure Significant relationship No significant
2. Government between ownership structure relationship between
Mohd Ghazali
and Weetman
Malaysia 3. New governance initiatives, and the extent of disclosure. Government, new
(2006)
and governance initia-

4. industry competitiveness tives and industry
competitiveness and
the extent of
disclosure.
1. Size (proxied by sales No significant
Hossain, Islam and Andrew
and assets) Significant relationship association between

2. Profitability (proxied by between industry type, size, ROA, multi-
rate of return on assets debenture and net profit nationality,
Bangladesh
and net profit margin) margin and disclosure of international link of

(2006)
3. Multi-nationality social and environmental audit firm and audit

(subsidiaries of the information in annual fees.
multinational co.) corporate reports.
4. Industry type
5. International link of the
audit firm, and
6. Audit fees.
1. Leverage Significant relationship No significant
Christensen
Silva and
2. Performance (EPS) between firm size, leverage, relationship between

(2004)
Brazil
3. Firm size profitability (ROA) and the EPS (annual earnings

4. Profitability (ROA) extent of disclosure. per share) and extent
of disclosure.
1. Size Significant relationship No significant
Yamori
Spiegel
Japan
(2004)
2. Leverage between size, leverage and association between

and
3. Adverse news adverse news and extent of market structure and

4. Market structure disclosure. extent of disclosure.
Bahrain, KSA
Ismail (2002)
2. Leverage between size, leverage and association between

Qatar,
3. Profitability profitability and extent of industry type and

4. Industry type disclosure. country of origin
5. Country of origin and extent of
disclosure.
6. Firm size Hong Kong-Ownership Singapore-family
7. Audit firm size structure and family ownership, Both
Hong Kong and
Chau and Gray
8. Leverage ownership country-audit firm

Singapore
(2002)
9. Profitability Singapore- Ownership size, leverage,

10. Ownership structure structure and size profitability, multi-
11. Multi-nationality nationality and
12. Industry type industry type
13. Family ownership
1. Size Corporate governance Culture (race;
2. Leverage (family members; non- qualification of BOD;
Haniffa and Cooke
3. Profitability executive chairman); Firm- qualification of

Malaysia
4. Listing age specific characteristics (size; financial controller),

(2002)
5. Assets-in-place diversification; asset-in- Firm characteristics

6. Ownership structure place; ownership structure; (leverage, auditor
7. Diversification profitability) type, listing age,
8. Family members foreign activities)
9. Culture
141
1. Size Significant relationship Profitability (ROI),
Shrives,
Watson,
Marston
2. Profitability (ROI) between size and industry gearing and
UK 3. Gearing type and extent of voluntary company efficiency.
4. Industry type disclosure.
5. Co. efficiency
1. International link of Significant relationship No significant
auditing firms between international link of relationship between
2. Total of Assets auditing firms, total of assets, assts-in-place and
3. Net Profit Margin net profit margin, ROA, industry type and the
Hossain (1998)
4. ROA multi-nationality of extent of disclosure.

Bangladesh
5. Multi-nationality of companies, total assets,

companies presence of debentures in the
6. Total Assets companies debt and debt to
7. Assets-in-Place equity ratio and the extent of
8. Presence of Debenture in disclosure.
the companies debt
9. Industry type
10. Debt to equity ratio
1. Size (as measured by Significant relationship No significant
assets) between assets size, multiple association between
2. Multiple stock exchange stock exchange listing, ROA, ROE, leverage (total
Inchausti (1997)
listing audit firm size, and the extent liability/equity),

3. Profitability (ROA and of disclosure. industry and dividend
Spain
ROE) pay out and the

4. Leverage (total extent of disclosure.
liability/equity)
5. Audit firm size
6. Industry, and
7. Dividend pay out
1. Company size (as Significant relationship No significant
measured by assets) between assets size, auditor’s relationship between
2. Leverage size, ROA, and the extent of ownership structure,
Raffournier (1995)
3. Profitability disclosure. assets-in-place,

Switzerland
4. Ownership Structure industry type,

5. Internationality of the leverage and the
companies extent of disclosure.
6. Auditor’s size
7. Percentage of Assets
(assets-in-place), and
8. Industry type
1. Profit margin Significant relationship No significant
2. Earnings return between profit margin, total association between
Wallace and Naser (1995)
3. Liquidity ratios assets, scope of business market capitalization,

4. Debt-Equity ratios operations, audit size liquidity ratios, ROE,
Hong Kong
(leverage) influence and extent of and the extent of

5. Firm size (total assets, disclosure. disclosure.
sales, and capitalized
market value)
6. Market capitalization
7. Scope of business
operations, and
8. Audit size influence
142
Meek, Roberts,
& Gray (1995)
U.S. , U.K. &

2. Leverage between size, country/ relationship between
Continental
3. Profitability region, international listing leverage, multi-
Europe
4. Country/region status, and industry type and nationality and
5. Multi-nationality extent of voluntary disclosure profitability and the
6. International listing status level. extent of disclosure.
7. Industry type
Zealand
2. Leverage between size, leverage, and association between

Perera &
Hossain,
Rahman
(1995)
New
3. Assets-in-place foreign listing status and assets-in-place and

4. type of auditor disclosure status. type of auditor and
5. foreign listing status extent of disclosure.
1. Total debt Significant relationship No significant
Ahmed and Nicholls
2. Size (as measured by between audit firm size, and relationship between
annual sales, and total multi-nationality and the annual sales, assets
Bangladesh
assets) extent of disclosure. size, total debt and

(1994)
3. Multinational company the qualification of

influence the principal accounts
4. Qualification of the officer and the extent
principal accounts officer of disclosure.
of the company
1. Size Significant relationship No insignificant
(1992)
Cooke
Japan
2. Stock market listing, and between size, listing status, variable.

3. Industry type and industry type and the
2. Listing Status between Size, listing status, association between
Cooke (1989)
3. Industry type industry type, internationality Leverage, fixed

Sweden
4. Leverage and the extent of disclosure. assets, no. of

5. Fixed assets subsidiaries, and
6. No. of subsidiaries parent co.
7. Parent Co. relationship relationship and
8. Internationality disclosure level.
1. Firm size measured by Significant relationship No significant
sales between total assets and association between
2. Firm size measured by multi-nationality of the firm liquidity, profit-
assets and the extent of disclosure. ability, annual sales,
Wallace (1987)
3. Number of shareholders number of share-

Nigeria
4. Profitability holders, industry

5. Liquidity type, and origin of
6. Industry type multinationals and
7. Multi-nationality of the the extent of
firm, and disclosure.
8. Country of origin of
multinationals
1. Firm size as measured by Significant relationship No significant
Wong-Boren
assets between firm size and the association between

Chow and
Mexico
(1987)
2. Financial leverage, and extent of disclosure. leverage and

3. Proportion assets-in- proportion of assets
place in place and the
143
2. Leverage between leverage and relationship between
Canada
(1984)
Firth
3. Earnings earnings beta the extent of size and dividend

4. Dividend yield voluntary disclosure. yield and the extent
of disclosure.
1. Size of the firm (as Significant relationship No significant
(1979)
Firth
measured by sales) between firm size and listing relationship between

UK
2. Stock market listing, and status and the extent of auditors and the
3. Auditors disclosure. extent of disclosure.
1. Size of the firm (as Significant relationship No significant
Belkaoui and
Kahl (1978)
measured by sales) between size of the firm, association between

Canada
2. Profitability industry type, profitability liquidity and the

3. Liquidity and capitalization ratio and extent of disclosure.
4. Capitalization ratio, and the extent of disclosure.
5. Industry type
1. Industry type and Significant relationship No significant
2. Firm size (as measured between size of the firm, relationship between
Stanga
(1976)
USA
by sales) industry type and the extent firm size as measured

of disclosure. by sales and the
1. Size (as measured by Significant relationship No significant
(1974)
Buzby
USA
assets), and between size of the firm and association between

2. Listing status the extent of disclosure. listing status and the
Source: Summarized by the author on the basis of available literature
7.3 Hypotheses for the Study

The purpose of this chapter is to examine the relationship between the level of disclosure
in annual reports and a number of industry attributes. The expected relationship is
examined by the following null hypothesis:
H0: There is no significant relationship between level of disclosure and a number of
industry attributes [viz. size of the bank {total assets, gross revenue, and number of
branches}, age of the bank, profitability {EPS, ROA, ROI, and net profit margin
(NPM)}, investment-deposit ratio (IDR), capital adequacy ratio (CAR), and debt-
equity ratio (DER)].
The multiple linear regression technique has been used to test the two alternative
hypotheses.
7.4 The Dependent Variables, Independent Variables and Hypotheses

The dependent variable used in the present study is Un-weighted Disclosure Index (UDI)
and the disclosure index has been calculated for each of the sample bank under study.
The independent variables used in this study have been taken considering the previous
studies performed by other researchers (see Table 7.1). These researchers have tested
144
these variables in respect of both developed and developing countries. The independent
variables considered are size {measured by TA, GR, and NOB}, AGE, profitability
{measured by EPS, ROA, ROI, and NPM}, IDR, CAR and DER.
7.4 (a) Size of the bank

Many disclosure studies (e.g. Cooke, 1991 and Ahmed and Nichollas, 1994) suggest that
there is a significant relationship between firm size and the extent of voluntary disclosure.
Hossain et al. (1995) found a positive relationship between size and the level of
information disclosed, while McNally et al. (1982) concluded that size is a dominant
corporate characteristic in establishing the leaders in voluntary disclosure practice.
Ahmed (2009) identified few reasons for which larger banks may be expected to report
more information in their annual reports than smaller banks: firstly, larger banks have
more resource and expertise to report more information; secondly, larger banks may
collect more information at relatively low cost; thirdly, banks having more branches may
collect more information to be used for their internal management system; fourthly,
smaller banks may feel that reporting more information will endanger their competitive
position; fifthly, larger banks tend to go to the stock market for financing more often than
do smaller banks and as result may disclose more information for their own interest and
finally, larger banks may increase reputation and avoid criticism and govt. intervention
providing more information in their annual reports (Firth, 1979). Ahmed and Courtis
(1999) findings’ appear to support the political and agency cost hypotheses that larger
firms are more likely to disclose more information.
Other studies that have found a significant relationship between the size of the
organization and the level of disclosure are Hossain, 2010; Sila and Christensen, 2004;
Spiegel, M.M. and Yamori, N., 2004; Ismail, T.H., 2002; Inchausti, 1997; Wallace and
Naser, 1995; Raffournier, 1995; Cooke, 1989; Wallace, 1987, Chow and Wong-Boren,
1987; Buzby, 1974; Singhvi and Desai, 1971. However, other researchers like Sutthachai
and Cooke (2009), Spero (1979) and Stanga (1976) found no significant relationship
between size of the firm and level of reporting information.
145
Several measures can be taken as the measure of size of the banks. In the present study,
total assets, gross revenue, and number of branches were used as the measure of size of
the banks. The hypotheses in this regard were taken as below:
H1(a): Total assets (TA) does not affect the level of reporting information of the Islamic
banks.
H1(b): Gross revenue (GR) does not affect the level of reporting information of the Islamic
banks.
H1(c): Number of branches (NOB) does not affect the level of reporting information of the
Islamic banks.
7.4 (b) Age of the bank

It is argued that older, well-established companies are likely to disclose more than newly
established companies. The extent of a company’s disclosure may be influenced by its
age, i.e. stage of development and growth (Owusu-Ansah, 1998; Akhtaruddin, 2005).
Owusu-Ansah (1998, p. 605) pointed out three factors that may contribute to this
phenomenon. Firstly, younger companies may suffer competition, secondly, the cost and
the ease of gathering, processing, and disseminating the required information may be a
contributory factor, and finally, younger companies may lack a track record (rich history)
on which to rely for public disclosure. Kakani et al. (2001) pointed out that newer and
smaller firms, as a result, take to the market in spite of disadvantages like their lack of
capital, brand name and reputation with older firms. These attributes have been studied
by various authors with conflicting results. Wallace et. al. (1994, p. 43) have argued, that
the variation in findings are possibly a result of variation in sample size, different
statistical methods, different research settings and differences in index construction.
Ahmed and Courtis (1999) have also noted the variation in results and carried out a meta-
analysis to investigate these variations and draw more consistent conclusions. They found
that larger firms disclose more information than small firms, and this result was
significant.
However, it is not possible to reach a conclusion that long-established banks can disclose
more information or be more compliant than newly-established banks. This leads to the
following hypothesis:
146
H2: Age of the bank does not affect the level of reporting information of the Islamic
banks.
7.4 (c) Profitability

Earlier studies of Cerf, 1961; Singhvi and Desai, 1971; Wallace, 1987; Raffournier, 1995;
Wallace and Naser, 1995; Inchausti, 1997; Owusu-Ansah, 1998; Hossain, 1998 identified
that profitability is capable of influencing the level of corporate information disclosure.
These studies argue that profitability is a measure of management performance, and as
such management of a profitable company is likely to disclose more information to
support its performance-related compensatory schemes. Inchausti (1997) employs
signaling theory to argue that management, when in possession of 'good news' due to
better performance, are more likely to disclose more information to the stock market.
Good news would lead to an increased share price valuation on the stock market. A
counter argument is that unprofitable companies are also inclined to release more
information to defend their poor performance (Owusu-Ansah, 1998). Lang and Lundholm
(1993) noted that the influence of a company's profitability level on disclosure can be
positive, neutral or negative, depending on its performance. Ahmed (2009) argued that
banking companies having higher profitability may report more information in their
annual reports than the banks with lower profitability (or losses) for a number of reasons.
He added that if a bank is less profitable then it will tend to report less information to
cover up the reasons for losses or lower profits. But the study of Belkaoui and Kahl
(1978) found a negative relationship between profitability and level of reporting.
In this study, EPS, ROA, ROI and NPM have been used as the proxies of profitability.
The following specific hypotheses have been tested regarding profitability:
H3(a): Earning per share (EPS) does not affect the level of reporting information of the
Islamic banks.
H3(b): Return on assets (ROA) does not affect the level of reporting information of the
Islamic banks.
H3(c): Return on Investment (ROI) does not affect the level of reporting information of the
Islamic banks.
147
H3(d): Net profit margin (NPM) does not affect the level of reporting information of the
Islamic banks.
7.4 (d) Investment Deposit Ratio (IDR)

As a financial institution, banking companies are expected to report more information to
the users of the annual reports. Banking business is a business of confidence and to
increase the confidence of the depositors and borrowers they may need to disclose some
additional information what is not supposed to be disclosed by other manufacturing or
business organizations. High ratio of investment deposit ensures to bounding involve
promise to monitor the borrower. Banking companies having high ratio of credit deposit
may report more information in their annual reports than the banks with low ratio of
investment deposit. If the ratio is low them management may try to report low
information to hide their low performance and if it is high then they may try to report
more information to highlight their performance to the users of the reports.
In case of the banking companies, investment deposit ratio may be used as a variable
because all banks report investment deposit ratio in their annual reports mandatorily.
Ahmed (2009) used investment deposit ratio in his study as an independent variable. In
this present study, investment deposit ratio was used as an independent variable to judge
whether there is any relationship between the investment deposit ratio and level of
disclosure. The specific hypothesis tested in this regard is as below:
H4: Investment deposit ratio does not affect the level of reporting information in the
annual reports of Islamic banks.
7.4 (e) Capital Adequacy Ratio (CAR)

The Capital Adequacy Ratio (CAR) is the percentage of bank’s capital funds in relation
to the Risk Weighted Assets of the bank. Capital Adequacy Ratio (CAR) is a measure of
a bank’s capital and is expressed as a percentage of a bank’s risk weighted investment
exposure. Capital Adequacy Ratio (CAR) evaluates the overall financial strength of an
institution based on an integrated framework. Higher Capital Adequacy Ratio (CAR) and
better risk management systems theoretically speaking should lead to a more stable and
balanced banking systems reducing the overall financial institution failure rate (Ahmed,
2009). Banking companies having high Capital Adequacy Ratio (CAR) may report more
148
information in their annual reports than the banks with low Capital Adequacy Ratio
(CAR). If the ratio is low then management may try to report low information to hide
their low performance and if it is high then they may try to report more information to
highlight their performance to the users of the reports.
In case of the banking companies, Capital Adequacy Ratio (CAR) may be used as a
variable because all banks report Capital Adequacy Ratio (CAR) in their annual reports
mandatorily. Ahmed (2009) used Capital Adequacy Ratio (CAR) in his study as an
independent variable. In this present study, Capital Adequacy Ratio (CAR) was used as
an independent variable to judge whether there is any relationship between the Capital
Adequacy Ratio (CAR) and level disclosure. The specific hypothesis tested in this regard
is as below:
H5: Capital Adequacy Ratio (CAR) does not affect the level of reporting information in
the annual reports of Islamic banks.
7.4 (f) Debt Equity Ratio (DER)

Debt Equity Ratio (DER) measures the volume of debt in relation to equity. Companies
having more debt can expect to be more keenly monitored by the lenders and may be
required to furnish information more frequently than companies having lower amounts of
debts (Ahmed an Nicholls, 1994). The nature of the relationship between the level of
reporting information and debt equity ratio is uncertain because companies having more
debt in their financial structure can report more as well as less information in their annual
reports. Highly geared companies may report more information for the needs of the
lenders and on the other hand, companies having more debts may report less information
in their annual reports to cover up the level of risk (Ahmed, 2009).
The debt equity ratio has been studied empirically by several researchers to evaluate
whether there is any relationship between level of reporting information and debt equity
ratio. Ahmed (2009), Hossain (1998), Inchausti (1997), Wallace and Naser (1995),
Ahmed and Nicholls, (1994), and Chow and Wong-Boren (1987) did not found any
relationship between DER and level of disclosure. But Belkaoui and Kahl (1978) found a
significant negative relationship between the level of reporting information and DER.
The hypothesis tested in this regard is as below:
149
H6: Debt equity ratio does not affect the level of reporting information of the Islamic
banks.
7.5 Regressional Studies between Disclosure Score vs. Bank Size

To test whether disclosure level of sample banks is affected by the size of the bank, we
have taken different measures of bank size such as, TA, GR, and NOB to regress them
with disclosure score. Accordingly we have formulated different hypotheses.
7.5 (a) Regressional Studies between Disclosure Score vs. Total Assets (TA)
Table: 7.2 showing the Regressional Studies between Disclosure Score vs. Total Assets
(TA)
2
Year R F ratios Significance level
2006 .774 17.145 .009
2007 .721 12.953 .016
2008 .745 14.574 .012
2009 .672 10.255 .024
2010 .726 13.259 .015
From the regression result we observe that the values of R2 in all years 2006-2010 is high
and the significance levels of the regression co-efficient are below .05. So, our null
hypothesis is rejected which means that the bank size as measured by total assets affects
the disclosure score.
7.5 (b) Regressional Studies between Disclosure Score vs. Gross Revenue (GR)
Table: 7.3 showing the Regressional Studies between Disclosure Score vs. Gross
Revenue (GR)
Year R2 F ratios Significance level
2006 .813 21.703 .006
2007 .749 14.936 .012
2008 .751 15.045 .012
2009 .730 13.488 .014
2010 .761 15.889 .010
150
hypothesis is rejected which means that the bank size as measured by gross revenue
affects the disclosure score.
7.5 (c) Regressional Studies between Disclosure Score vs. Number of Branches
(NOB)
Table: 7.4 showing the Regressional Studies between Disclosure Score vs. Number of Branches
(NOB)
2
2006 .771 16.817 .009
2007 .752 15.138 .012
2008 .753 15.250 .011
2009 .626 8.359 .034
2010 .659 9.679 .027
hypothesis is rejected which means that the bank size as measured by number of branches
affects the disclosure score.
7.6 Regressional Studies between Disclosure Score vs. Age

To test whether disclosure level of sample banks is affected by age, we have taken
different measure such as AGE to regress them with disclosure score. Accordingly we
have formulated different hypothesis.
Table: 7.5 showing the Regressional Studies between Disclosure Score vs. Age
2006 .309 2.237 .195
2007 .301 2.154 .202
2008 .315 2.298 .190
2009 .162 0.966 .371
2010 .180 1.099 .342
From the regression result we observe that the values of R2 are small and the significance
levels of the regression co-efficient are above .05. So, our null hypothesis is accepted
which means that Age does not affect the disclosure score.
151
7.7 Regressional Studies between Disclosure Score vs. Profitability
To test whether disclosure level of sample banks is affected by profitability of the bank,
we have taken different measures of profitability such as, EPS, ROA, ROI, and NPM to
regress them with disclosure score. Accordingly we have formulated different
hypotheses.
7.7 (a) Regressional Studies between Disclosure Score vs. Earning per Share (EPS)
Table: 7.6 showing the Regressional Studies between Disclosure Score vs. Earning per
Share (EPS)
2006 .262 1.778 .240
2007 .051 0.271 .625
2008 .000 0.000 .989
2009 .483 4.670 .083
2010 .515 5.313 .069
which means that the profitability as measured by EPS does not affect the disclosure
score.
7.7 (b) Regressional Studies between Disclosure Score vs. Return on Assets (ROA)
Table: 7.7 showing the Regressional Studies between Disclosure Score vs. Return on
Assets (ROA)
2006 .016 .065 .811
2007 .037 .152 .717
2008 .179 .874 .403
2009 .001 .006 .944
2010 .000 .001 .982
which means that the profitability as measured by ROA does not affect the disclosure
score.
152
7.7 (c) Regressional Studies between Disclosure Score vs. Return on Investment
(ROI)
Table: 7.8 showing the Regressional Studies between Disclosure Score vs. Return on
Investment (ROI)
2
2006 .192 .947 .385
2007 .053 .224 .661
2008 .223 1.151 .344
2009 .163 .781 .427
2010 .074 .318 .603
which means that the profitability as measured by ROI does not affect the disclosure
score.
7.7 (d) Regressional Studies of Disclosure Score vs. Net Profit Margin (NPM)
Table: 7.9 showing the Regressional Studies between Disclosure Score vs. Net Profit
Margin (NPM)
2
2006 .230 1.195 .336
2007 .154 .731 .441
2008 .367 2.315 .203
2009 .433 3.060 .155
2010 .168 .806 .420
which means that the profitability as measured by NPM does not affect the disclosure
score.
7.8 Regressional Studies between Disclosure Score vs. Investment Deposit Ratio
(IDR)
To test whether disclosure level of sample banks is affected by investment deposit ratio,
we have taken different measure such as IDR to regress them with disclosure score.
Accordingly we have formulated different hypotheses.
153
Table: 7.10 showing the Regressional Studies between Disclosure Score vs. Investment
Deposit Ration (IDR)
2
2006 .003 .016 .905
2007 .145 .847 .400
2008 .075 .407 .552
2009 .109 .613 .469
2010 .022 .113 .750
which means that investment deposit ratio (IDR) does not affect the disclosure score.
7.9 Regressional Studies between Disclosure Score vs. Capital Adequacy Ratio
(CAR)
To test whether disclosure level of sample banks is affected by capital adequacy ratio, we
have taken different measures such as CAR to regress them with disclosure score.
Accordingly we have formulated different hypotheses.
Table: 7.11 showing the Regressional Studies between Disclosure Score vs. Capital
Adequacy Ration (CAR)
2006 .013 .054 .827
2007 .036 .149 .719
2008 .083 .363 .580
2009 .028 .113 .753
2010 .260 1.408 .301
which means that capital adequacy ratio (CAR) does not affect the disclosure score.
7.10 Regressional Studies between Disclosure Score vs. Debt-Equity Ratio (DER)
To test whether disclosure level of sample banks is affected by debt-equity ratio, we have
taken different measures such as DER to regress them with disclosure score. Accordingly
we have formulated different hypotheses.
154
Table: 7.12 showing the Regressional Studies between Disclosure Score vs. Debt-Equity Ratio
(DER)
2006 .377 2.420 .195
2007 .442 3.169 .150
2008 .019 .075 .797
2009 .264 1.436 .297
2010 .336 2.020 .228
which means that debt-equity ratio (DER) does not affect the disclosure score.
7.11 Multiple Regression Models

Multiple linear regression techniques are used to test two alternative versions of each
hypothesis. The model is developed using UDI as the dependent variable.
UDI = α + β1 TA + β2 GR + β3 NOB + β4 AGE + β5 EPS + β6 ROA + β7 ROI + β8
NPM + β9 IDR + β10 CAR + β11 DER + є
Where UDI = total score received by each sample bank under un-weighted disclosure
score index;
α = the constant, and
є = the error term
7.12 Regressional Studies of Disclosure Score vs. Multiple Variables

To test whether disclosure level of the sample banks is affected by multiple variables, we
have taken the measures such as size of the bank {total assets, gross revenue, and number
of branches}, age, profitability {EPS, ROA, ROI and NPM}, investment deposit ratio
(IDR), capital adequacy ratio (CAR), and debt-equity ratio (DER) to regress them with
disclosure score. Accordingly we have formulated null hypothesis.
Table: 7.13 showing the Regressional Studies between Disclosure Score vs. Multiple
Variables
2006 1.000 - -
2007 1.000 - -
2008 1.000 - -
2009 1.000 - -
2010 1.000 - -
155
From the multiple regression result we observe that values of R2 are high and complete 1
and the significance levels of the regression co-efficient are 0. So, null hypothesis is
rejected which means that multiple variables together affect the disclosure score.
7.13 Independent Variables with their Labels and Association in the Regression
The description of the eleven independent variables, their labels and significance levels
are presented in the following table.
Table: 7.14 showing list of independent variables, their labels and significance levels in
the Regression
Variable Labels Variables Significance Levels
TA Total assets Significance levels are below .05
GR Gross revenue, and Significance levels are below .05
NOB Number of branch Significance levels are below .05
AGE Age Significance levels are above .05
EPS Earning per share Significance levels are above .05
ROA Return on assets Significance levels are above .05
ROI Return on investment Significance levels are above .05
NPM Net profit margin Significance levels are above .05
IDR Investment deposit ratio Significance levels are above .05
CAR Capital adequacy ratio Significance levels are above .05
DER Debt-equity ratio Significance levels are above .05
7.14 Correlation Analysis
To examine the correlation between the dependent and independent variables, Pearson
product moment correlation co-efficient (r) were computed. A correlation matrix of all
the values of r for the independent variables along with the dependent variable was
constructed and is shown in Table 7.15, Table 7.16, Table 7.17, Table 7.18, Table 7.19
and Table 7.20 for the years 2006, 2007, 2008, 2009, 2010 and 2006-2010 as a whole
respectively.
156
7.14(a) Correlation Matrix for the year 2006
Table: 7.15 showing correlation between disclosure score and independent variables in 2006
DS TA GR NOB AGE EPS ROA ROI NPM IDR CAR DER
DS Pearson Correlation 1.000
Sig. (2-tailed) .
N 7
TA Pearson Correlation .880** 1.000
Sig. (2-tailed) .009 .
N 7 7
GR Pearson Correlation .902** .994** 1.000
Sig. (2-tailed) .006 .000 .
N 7 7 7
NOB Pearson Correlation .878** .975** .956** 1.000
Sig. (2-tailed) .009 .000 .001 .
N 7 7 7 7
AGE Pearson Correlation .556 .669 .601 .756* 1.000
Sig. (2-tailed) .195 .100 .153 .049 .
N 7 7 7 7 7
EPS Pearson Correlation .512 .120 .138 .203 .369 1.000
Sig. (2-tailed) .240 .798 .768 .663 .415 .
N 7 7 7 7 7 7
ROA Pearson Correlation -.048 -.295 -.321 -.218 .092 .556 1.000
Sig. (2-tailed) .919 .521 .482 .638 .844 .195 .
N 7 7 7 7 7 7 7
ROI Pearson Correlation .288 -.123 -.116 -.032 .137 .875** .849* 1.000
Sig. (2-tailed) .531 .793 .805 .946 .770 .010 .016 .
N 7 7 7 7 7 7 7 7
NPM Pearson Correlation .071 -.170 -.210 -.066 .408 .748 .888** .846* 1.000
Sig. (2-tailed) .879 .716 .652 .887 .364 .053 .008 .016 .
N 7 7 7 7 7 7 7 7 7
IDR Pearson Correlation .056 -.233 -.211 -.097 .096 .673 .304 .549 .447 1.000
Sig. (2-tailed) .905 .616 .649 .837 .838 .097 .507 .202 .315 .
N 7 7 7 7 7 7 7 7 7 7
CAR Pearson Correlation .205 .224 .295 .158 -.474 -.381 -.669 -.448 -.848* -.128 1.000
Sig. (2-tailed) .659 .629 .520 .735 .283 .399 .100 .314 .016 .785 .
N 7 7 7 7 7 7 7 7 7 7 7
DER Pearson Correlation .188 .218 .287 .150 -.473 -.400 -.696 -.475 -.865* -.141 .999** 1.000
Sig. (2-tailed) .686 .639 .532 .747 .283 .374 .082 .281 .012 .762 .000 .
N 7 7 7 7 7 7 7 7 7 7 7 7
**. Correlation is significant at the 0.01 level (2-tailed).
*. Correlation is significant at the 0.05 level (2-tailed).

As per the Table 7.15, the correlation matrix for the year 2006 reveals that there is a high and
positive correlation between Disclosure Score (DS) and Gross Revenue (GR), Total Assets
(TA) and Number of Branches (NOB). The table shows a reasonable amount of significant
collinearity (P≤0.01) between Disclosure Score (DS) and Gross Revenue (GR) .902,
Disclosure Score (DS) and Total Assets (TA) .880 and Disclosure Score (DS) and Number of
Branches (NOB) .878. These values of correlation indicate that the higher the amount of
gross revenue, total assets and number of branches the higher the level of information
reported by the Islamic banks in Bangladesh.
157
7.14(b) Correlation Matrix for the year 2007
Sig. (2-tailed) .
N 7
TA Pearson Correlation .849* 1.000
N 7 7
GR Pearson Correlation .866* .991** 1.000
Sig. (2-tailed) .012 .000 .
N 7 7 7
NOB Pearson Correlation .867* .984** .957** 1.000
Sig. (2-tailed) .012 .000 .001 .
N 7 7 7 7
AGE Pearson Correlation .549 .655 .565 .743 1.000
Sig. (2-tailed) .202 .111 .186 .056 .
N 7 7 7 7 7
EPS Pearson Correlation -.227 -.209 -.283 -.139 .445 1.000
Sig. (2-tailed) .625 .652 .538 .767 .317 .
N 7 7 7 7 7 7
ROA Pearson Correlation -.052 -.307 -.311 -.270 .064 .764* 1.000
Sig. (2-tailed) .912 .504 .497 .558 .891 .045 .
N 7 7 7 7 7 7 7
ROI Pearson Correlation -.011 -.323 -.326 -.276 .058 .713 .990** 1.000
Sig. (2-tailed) .982 .479 .476 .549 .902 .072 .000 .
N 7 7 7 7 7 7 7 7
NPM Pearson Correlation -.141 -.263 -.324 -.180 .395 .964** .870* .850* 1.000
Sig. (2-tailed) .764 .568 .478 .699 .381 .000 .011 .015 .
N 7 7 7 7 7 7 7 7 7
IDR Pearson Correlation .381 -.054 -.001 -.011 -.103 .001 .383 .431 .165 1.000
Sig. (2-tailed) .400 .908 .998 .982 .826 .997 .396 .335 .724 .
N 7 7 7 7 7 7 7 7 7 7
CAR Pearson Correlation .244 .250 .332 .164 -.473 -.987** -.727 -.693 -.966** .031 1.000
Sig. (2-tailed) .597 .589 .467 .725 .284 .000 .064 .084 .000 .948 .
N 7 7 7 7 7 7 7 7 7 7 7
DER Pearson Correlation .219 .245 .324 .158 -.472 -.986** -.752 -.722 -.976** .005 .999** 1.000
Sig. (2-tailed) .637 .597 .478 .735 .285 .000 .051 .067 .000 .991 .000 .
N 7 7 7 7 7 7 7 7 7 7 7 7

As per the Table 7.16, the correlation matrix for the year 2007 reveals that there is a high
and positive correlation between Disclosure Score (DS) and Gross Revenue (GR), Total
Assets (TA) and Number of Branches (NOB). The table shows a reasonable amount of
significant collinearity (P≤0.05) between Disclosure Score (DS) and Gross Revenue (GR)
.866, Disclosure Score (DS) and Total Assets (TA) .849 and Disclosure Score (DS) and
Number of Branches (NOB) .867. These values of correlation indicate that the higher the
amount of gross revenue, total assets and number of branches the higher the level of
information reported by the Islamic banks in Bangladesh.
158
7.14(c) Correlation Matrix for the year 2008
Sig. (2-tailed) .
N 7
N 7 7
Sig. (2-tailed) .012 .000 .
N 7 7 7
Sig. (2-tailed) .011 .000 .000 .
N 7 7 7 7
Sig. (2-tailed) .190 .134 .206 .067 .
N 7 7 7 7 7
EPS Pearson Correlation .006 .254 .317 .190 -.398 1.000
Sig. (2-tailed) .989 .583 .489 .683 .377 .
N 7 7 7 7 7 7
ROA Pearson Correlation .332 .265 .358 .174 -.511 .686 1.000
Sig. (2-tailed) .467 .566 .430 .709 .242 .089 .
N 7 7 7 7 7 7 7
ROI Pearson Correlation .339 .261 .353 .178 -.488 .665 .997** 1.000
Sig. (2-tailed) .457 .572 .437 .702 .267 .103 .000 .
N 7 7 7 7 7 7 7 7
NPM Pearson Correlation .283 .288 .377 .204 -.467 .743 .981** .985** 1.000
Sig. (2-tailed) .538 .531 .404 .661 .291 .055 .000 .000 .
N 7 7 7 7 7 7 7 7 7
IDR Pearson Correlation -.274 -.338 -.401 -.277 .186 -.470 -.757* -.790* -.843* 1.000
Sig. (2-tailed) .552 .459 .372 .548 .690 .287 .049 .035 .017 .
N 7 7 7 7 7 7 7 7 7 7
CAR Pearson Correlation .228 .272 .360 .188 -.474 .768* .962** .967** .996** -.861* 1.000
Sig. (2-tailed) .623 .555 .428 .687 .283 .044 .001 .000 .000 .013 .
N 7 7 7 7 7 7 7 7 7 7 7
DER Pearson Correlation .221 .273 .360 .189 -.468 .775* .956** .962** .994** -.865* 1.000** 1.000
Sig. (2-tailed) .634 .554 .428 .684 .289 .040 .001 .001 .000 .012 .000 .
N 7 7 7 7 7 7 7 7 7 7 7 7

159
7.14 (d) Correlation Matrix for the year 2009
Sig. (2-tailed) .
N 7
N 7 7
Sig. (2-tailed) .014 .000 .
N 7 7 7
Sig. (2-tailed) .034 .000 .001 .
N 7 7 7 7
Sig. (2-tailed) .371 .164 .277 .100 .
N 7 7 7 7 7
Sig. (2-tailed) .083 .155 .077 .264 .596 .
N 7 7 7 7 7 7
ROA Pearson Correlation .421 .298 .398 .244 -.509 .862* 1.000
Sig. (2-tailed) .347 .517 .376 .599 .243 .013 .
N 7 7 7 7 7 7 7
ROI Pearson Correlation .451 .303 .403 .253 -.489 .863* .998** 1.000
Sig. (2-tailed) .310 .509 .370 .585 .266 .012 .000 .
N 7 7 7 7 7 7 7 7
NPM Pearson Correlation .434 .320 .414 .275 -.468 .852* .997** .998** 1.000
Sig. (2-tailed) .331 .485 .356 .550 .290 .015 .000 .000 .
N 7 7 7 7 7 7 7 7 7
IDR Pearson Correlation -.330 -.398 -.428 -.406 .135 -.619 -.762* -.776* -.800* 1.000
Sig. (2-tailed) .469 .377 .338 .366 .772 .139 .047 .040 .031 .
N 7 7 7 7 7 7 7 7 7 7
CAR Pearson Correlation .409 .300 .391 .260 -.476 .832* .993** .995** .997** -.828* 1.000
Sig. (2-tailed) .363 .514 .385 .573 .280 .020 .000 .000 .000 .021 .
N 7 7 7 7 7 7 7 7 7 7 7
DER Pearson Correlation .415 .315 .407 .272 -.471 .843* .997** .995** 1.00** -.804* .997** 1.000
Sig. (2-tailed) .354 .491 .365 .555 .287 .017 .000 .000 .000 .029 .000 .
N 7 7 7 7 7 7 7 7 7 7 7 7

160
7.14 (e) Correlation Matrix for the year 2010
Sig. (2-tailed) .
N 7
N 7 7
Sig. (2-tailed) .010 .000 .
N 7 7 7
Sig. (2-tailed) .027 .000 .002 .
N 7 7 7 7
Sig. (2-tailed) .342 .198 .326 .124 .
N 7 7 7 7 7
Sig. (2-tailed) .069 .150 .077 .247 .557 .
N 7 7 7 7 7 7
ROA Pearson Correlation .400 .304 .409 .223 -.575 .877** 1.000
Sig. (2-tailed) .374 .507 .362 .631 .177 .010 .
N 7 7 7 7 7 7 7
ROI Pearson Correlation .451 .316 .415 .248 -.533 .882** .993** 1.000
Sig. (2-tailed) .310 .489 .354 .592 .218 .009 .000 .
N 7 7 7 7 7 7 7 7
NPM Pearson Correlation .438 .359 .445 .306 -.485 .857* .986** .991** 1.000
Sig. (2-tailed) .325 .429 .317 .504 .269 .014 .000 .000 .
N 7 7 7 7 7 7 7 7 7
IDR Pearson Correlation -.149 -.226 -.181 -.324 -.047 -.168 -.373 -.425 -.509 1.000
Sig. (2-tailed) .750 .626 .698 .478 .920 .719 .410 .342 .243 .
N 7 7 7 7 7 7 7 7 7 7
CAR Pearson Correlation -.316 -.343 -.423 -.289 .505 -.793* -.954** -.944** -.971** .570 1.000
Sig. (2-tailed) .490 .451 .345 .530 .247 .033 .001 .001 .000 .182 .
N 7 7 7 7 7 7 7 7 7 7 7
DER Pearson Correlation .399 .366 .443 .325 -.468 .825* .972** .974** .995** -.563 -.985** 1.000
Sig. (2-tailed) .375 .419 .320 .477 .289 .022 .000 .000 .000 .188 .000 .
N 7 7 7 7 7 7 7 7 7 7 7 7

161
7.14 (f) Correlation Matrix for the years 2006-2010
Table: 7.20 showing correlation between disclosure score and independent variables for 5 years
Correlations
Sig. (2-tailed) .000
N 35
TA Pearson Correlation .809** 1.000
Sig. (2-tailed) .000 .000
N 35 35
GR Pearson Correlation .758** .946** 1.000
Sig. (2-tailed) .000 .000 .000
N 35 35 35
NOB Pearson Correlation .826** .881** .745** 1.000
Sig. (2-tailed) .000 .000 .000 .000
N 35 35 35 35
AGE Pearson Correlation .501** .413* .136 .713** 1.000
Sig. (2-tailed) .002 .014 .435 .000 .000
N 35 35 35 35 35
EPS Pearson Correlation .331 .246 .286 .197 .096 1.000
Sig. (2-tailed) .052 .154 .096 .257 .582 .000
N 35 35 35 35 35 35
ROA Pearson Correlation .254 .297 .509** .097 -.390* .465** 1.000
Sig. (2-tailed) .141 .083 .002 .580 .021 .005 .000
N 35 35 35 35 35 35 35
ROI Pearson Correlation .303 .302 .518** .114 -.364* .512** .991** 1.000
Sig. (2-tailed) .077 .078 .001 .513 .032 .002 .000 .000
N 35 35 35 35 35 35 35 35
NPM Pearson Correlation .246 .272 .475** .126 -.311 .454** .972** .978** 1.000
Sig. (2-tailed) .153 .114 .004 .471 .069 .006 .000 .000 .000
N 35 35 35 35 35 35 35 35 35
IDR Pearson Correlation -.038 -.182 -.275 -.168 .096 .122 -.373* -.364* -.421* 1.000
Sig. (2-tailed) .829 .297 .110 .336 .584 .486 .027 .032 .012 .000
N 35 35 35 35 35 35 35 35 35 35
CAR Pearson Correlation .172 .319 .442** .151 -.264 -.322 -.033 -.017 -.049 -.101 1.000
Sig. (2-tailed) .323 .062 .008 .385 .125 .060 .853 .922 .778 .562 .000
N 35 35 35 35 35 35 35 35 35 35 35
DER Pearson Correlation .264 .424* .665** .201 -.441** .138 .684** .686** .659** -.565** .533** 1.000
Sig. (2-tailed) .125 .011 .000 .248 .008 .430 .000 .000 .000 .000 .001 .000
N 35 35 35 35 35 35 35 35 35 35 35 35

As per the Table 7.20, the correlation matrix for the years 2006-2010 reveals that there is a
high and positive correlation between Disclosure Score (DS) and Gross Revenue (GR), Total
Assets (TA), Number of Branches (NOB) and age of the banks (AGE). The table shows a
reasonable amount of significant collinearity (P≤0.01) between Disclosure Score (DS) and
Number of Branches (NOB) .826, Disclosure Score (DS) and Total Assets (TA) .809,
Disclosure Score (DS) and Gross Revenue (GR) .758, and Disclosure Score (DS) and age of
the Islamic banks (AGE) .501. These values of correlation indicate that the higher the amount
of gross revenue, total assets, number of branches and age of bank the higher the level of
162
information reported by the Islamic banks in Bangladesh. These results are some what
different from the results of individual year. The age of the Islamic banks were not found to
be significantly correlated with the volume of reporting information but in consideration of
the whole study period from year 2006 to 2010, the age of the Islamic banks are found to be
significantly correlated.
7.15 Discussion of the Results

As per the regression analysis carried out in this study reveals that the sample banks
provide a fair representation of the corporate structure of banking sector in general and
specifically Islamic banking sector in Bangladesh. The sample included all the full
fledged Islamic banks in Bangladesh and all of them are listed in Dhaka Stock Exchange
(DSE) and Chittagong Stock Exchange (CSE). As per the previous analysis, it was found
that un-weighted disclosure index (UDI) is found to be significantly positively influenced
by size of the banks measured by Gross Revenue (GR), Total Assets (TA) and Number of
Branches (NOB) at minimum 1% level of significance in 2006 and 5% level of
significance in remaining study period. Hence, size of the banks is a statistically
significant determinant of level of reporting information in the annual reports of the
Islamic banks. Other variables were insignificant for un-weighted model at
conventionally acceptable levels. Profitability as a whole does not affect the level of
reporting information disclosed in annual reports but recently, that is, in 2009 and 2010,
EPS is positively affecting the extent of disclosure though the level of significance is
comparatively weaker (p≤0.10). Age, IDR, CAR and DER do not affect the amount of
information disclosed in the annual reports of the Islamic banks in Bangladesh. Table
7.13 summarizes the results of multiple regression analyses and the influence of a range
of industry attributes on the extent of information reported in annual reports by the
Islamic banks. The multiple regression results (values of R2) are the absolute figure
suggested a general relationship for the whole sample banks between different
independent variables and disclosure score. Tables 7.15, 7.16, 7.17, 7.18, 7.19 and 7.20
suggested a general relationship for the whole sample banks between different
independent variables and disclosure score. Age of the Islamic banks is found highly
correlated with the volume of reporting information if the whole study period from 2006
to 2010 is considered.
163
7.16 Comparison of the Results with Other Studies
Hossain (2010) has evaluated selected Bangladeshi pharmaceutical companies to
examine the association between the volumes of disclosure and selected industry
attributes. The independent variables used in that study were earning per share, return on
assets, return on equity, net profit margin, and gross revenue. He has found a significant
relationship between the extent of disclosure in annual report of the companies and net
profit margin (NPM) only at 5% level. Other variables were found to be insignificant in
influencing the extent of reporting information in the annual reports of pharmaceutical
companies in Bangladesh. But the present study was conducted on Islamic banking
companies and considered a wide variety of independent variables in evaluating the
association between industry attributes and level of reporting information in annual
reports. We found that the size of the Islamic banks measured by three variables TA, GR,
and NOB is affecting the volume of disclosure at 5% level while other variables were
found insignificant.
Ahmed (2009) has examined selected Bangladeshi banking companies in general to

justify the relationship between industry attributes and level of information disclosed in
annual reports. The basic difference between that study and the present study is that the
present study is conducted on all the full fledge Islamic banks in Bangladesh. The
independent variables used in that study were total assets, gross revenue, number of
branches, earning per share, return on assets, return on investment, net profit margin,
credit-deposit Ratio, capital adequacy ratio, debt-equity ratio, and shareholders’ risk ratio.
He has found significant relationship only between return on assets (ROA) and capital
adequacy ratio (CAR) and the extent of disclosure in annual report of the companies at
5% level. But in the present study, we found that the size of the Islamic banks measured
by three variables TA, GR, and NOB is affecting the volume of disclosure at 5% level
while other variables were found insignificant.
Hossain (1998) evaluated the relationship between a number of industry attributes and
extent of disclosure in corporate annual reports of listed non-financial companies in three
developing countries, Bangladesh, India and Pakistan. But the present study considers
only Islamic financial companies, that is, Islamic banks only. The independent variables
164
used in that were international link of auditing firms, total of sales, net profit margin, rate
of return on total assets, multi-nationality of companies, total assets, assets-in-place,
presence of debenture in the companies’ debt, industry type and debt to equity ratio. The
results of that study indicate that international link of auditing firms, total of sales, net
profit margin, rate of return on total assets, multi-nationality of companies, total assets,
presence of debenture in the companies’ debt and debt to equity ratio significantly affect
the extent of disclosure but other two variables such as assets-in-place and industry type
were not influencing the extent of disclosure at 5% level. But in the present study, we
found that the size of the Islamic banks measured by three variables TA, GR, and NOB is
affecting the volume of disclosure at 5% level while other variables were found
insignificant.
Ahmed and Nicholls (1994) have evaluated a sample of Bangladeshi companies and
have analyzed the relationship between the levels of disclosure and several corporate
features such as total debt, size (as measured by annual sales, and total assets),
multinational company influence, qualifications of principal accounts officer of the
company, and the size of the audit firm. They developed an un-weighted disclosure index
on the basis of the items of disclosure required by Companies Act, 1994 and SEC
Ordinance, 1987. They have found that there is significant relationship between the level
of disclosure and the multinational company influence and the size of the audit firm
variables at 5% level. But in the present study, we found that the size of the Islamic banks
measured by three variables TA, GR, and NOB is affecting the volume of disclosure at
5% level. In case of Ahmed and Nicholls (1994), the disclosure index included only the
mandatory items but in case of the present study we included mandatory, voluntary and
social responsibility items of information including some information required by
International Accounting Standard adopted in Bangladesh (BAS).
Wallace (1987) has analyzed the relationship between the level of disclosure and a
number of corporate attributes such as size, profitability, liquidity, type of management,
country of origin, and type of business. He constructed a disclosure index based on
statutory and voluntary disclosure items. He developed two disclosure indices: one being
a ‘statutory disclosure index’ and the other is ‘overall disclosure index’. Wallace (1987)
165
has found that among these variables, only transnational enterprises and asset were two
variables, which are positively significant with the extent of disclosure at the 5% level.
The rest of the variables were insignificant at 5% level. The R2 was very small; only
0.087, showing that only 9% of the variability in the overall disclosure index can be
explained by the impact of transnational enterprises and assets variables. In the present
study, we found that the size of the Islamic banks measured by total assets, gross revenue
and number of branches was significantly positively affecting the volume of information
disclosed in the annual reports at 5% level where the R2 is high.

This chapter reported the results of multiple linear regressions to test the relationship
between a number of industry attributes and the volume of information disclosed in the
annual reports of Islamic banks in Bangladesh. The volume of information disclosure was
measured using un-weighted disclosure index. The analysis of this chapter reveals that
volume of disclosure is related with some of the industry attributes. As per our study only
three variables representing the size of the banks, that is, TA, GR, and NOB are
significantly determining the volume of disclosure at 5% level. At 10% level of
significant EPS is also affecting the volume of disclosure in 2009 and 2010. If consider of
the whole study period from year 2006 to 2010, the age of the Islamic banks are also
found to be significantly correlated with the level of disclosure. The other variables were
found insignificant in determining the volume of information disclosed in annual reports.
Two comparatively new variables namely, NOB and IDR were used in this study for
Islamic banking disclosure index studies. The above tables, discussion and graphs are
supposed to be sufficient to achieve the objective no. 3 of the study, ‘to assess whether
there is any significant impact of industry attributes on the volume of accounting and
reporting information of Islamic banks.’
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8.1 Introduction
The aim of accounting and reporting is to fulfill the needs of information of the users of
the accounting reports. But the research for justifying whether the accounting and
reporting system could fulfill the needs or not is very much limited specially in the
developing counties. The studies of Hossain (2010), Ahmed (2009), and Nicholls and
Ahmed (1995) I Bangladesh and Wallace (1988a, 1988b) in Nigeria were directed in this
line to measure the perceptions of the users regarding the quality of reporting of the
financial information in developing countries. This chapter analyzes the results of the
questionnaire survey among a sample of professional accountants, accounting professors,
bank executives, stock brokers, and investors.
The important areas of discussion of this chapter is to identify the views of the five
different groups of users regarding purposes of using Islamic banking reports,
comparative reliability of the reports, mostly read parts of the reports, status of
compliance of the standards of different accounting regulatory bodies, and the qualitative
characteristics of accounting information. The analysis of this chapter is expected to
depict the present status of satisfaction of the users of accounting information of the
Islamic banks in Bangladesh and the areas where there is lacking in reporting of the
same. We can expect that this analysis will help accountants and regulatory bodies in
identifying their duties regarding accounting and reporting of the Islamic banks.
8.2 Test of Hypothesis

To test whether there is any significant difference of opinion of the respondents regarding
the qualitative characteristics of accounting information, we used the statistical
techniques of Chi-square (χ2) test using SPSS software. For this purpose, we developed a
null hypothesis as below:
H0 1: There are no significant differences between the opinion of the respondents
regarding the qualitative characteristics of accounting information.
8.3 Preparation and Collection of Questionnaire

On the basis of literature review, a questionnaire was prepared and pre-tested with
accounting professors of different universities, prominent academicians, researchers and
167
bankers. After getting the opinion from the pre-test, the questionnaire was finalized. The
final questionnaire of the study included a covering letter and background of the study
stating the purpose of the study so that the respondents could understand its importance
and became unbiased in responding the questionnaire. The questionnaire used for the
study is presented in Appendix # 5. After preparation of the questionnaire, the researcher
started questionnaire survey using direct interview method at Dhaka and Chittagong. The
direct interview method was used to reduce the non-response rate and for drawing
conclusion regarding respondents’ inference and attitudes.
8.4 Questionnaire Survey

The questionnaire survey of the study includes a target sample of 150 in total consisting
of 30 professional accountants, 30 accounting professors, 30 bank executives from
different Islamic banks, 30 stock brokers and 30 investors in Islamic banking shares. As
per thumb rule, for each question there should have 5 samples for which reason 150
sample were being taken here for about 30 questions. The survey was conducted during
the months February through June of 2012.
Table: 8.1 showing the target sample and rate of collection of the questionnaire
Sl. User Group Target No. of Rate of % of the
No. Sample Collections Collection (%) Target Sample
1 Professional Accountant (P.A.) 30 19 63.33 15.70
2 Accounting Professor (A.P.) 30 21 70.00 17.36
3 Bank Executives (B.E.) 30 30 100.00 24.79
4 Stock Broker (S.B.) 30 22 73.33 18.18
5 Investor (I.V.) 30 29 96.67 23.97
Total 150 121 80.67 100.00
From Table 8.1, we observe the size of target sample and rate of collection from the
different groups of the respondents. The achievement of target is highest in case of bank
executives that is 100%, the second highest collection is from investors that is 96.67%
and lowest achievement of target was in case of professional accountants that is only
63.33%. The overall achievement of target of collecting questionnaire was 80.67% and
this is good in compare to that of other similar studies. The percentage (%) of the sample
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shows that percentage of the bank executive category is the highest that is 24.79%
compared with the other four categories. The second highest category in the sample is
investor of 23.97% and the lowest percentage is in case of professional accountants of
15.70% among all the category of the respondents. The achievement of target of
collection of questionnaire is above the rate mentioned by Ahmed, A.A., (2009), Ali,
Khan, Fatima and Masud (2008) and Moser and Kalton (1971) as being sufficient for a
study leading to policy making.
8.5 Results of Previous Studies

Accounting and financial reports of the corporations are primarily prepared for the
external users of the information and therefore such reports should be designed, in form
and content, according to the needs of the external users (Radebough, and Gray, 1993).
Hence, the perceptions of the users of accounting information regarding various aspects
of the reports are to be assessed frequently to improve the quality of the accounting and
reporting practices of the public companies (Epstein, 1975).
Iyoha (2011) conducted a study on 61 Nigerian industries including 17 banking, 16

insurance, 5 conglomerates, 9 petroleum marketing, 3 agriculture, 7 food/beverage and 4
health industries for evaluation of the quality of accounting practice for which he
collected opinion from a total of 154 respondents consisting 43 compilers and 111 users
of information. Iyoha (2011) found that there is a significant difference in the quality of
accounting practice among industrial sectors in Nigeria in terms of relevance and
reliability. In terms of relevance which deals with timeliness of financial reporting, the
banking sector was found to be more compliant than other sectors in the Nigerian
economy. In terms of reliability of accounting practice, the banking sector was found to
be less transparent in financial reporting even though other industrial sectors were also
involved in earnings manipulation.
In a study on the pharmaceutical industries in Bangladesh, Hossain (2010) conducted a

survey on the perceptions of 140 respondents including 60 users of financial statements
(investors), 48 managers of the sample companies, 8 employees of regulatory agencies,
12 professional accountants and 12 accounts preparers regarding the qualitative
169
characteristics of the accounting information. Hossain (2010) found that perceptions
among the corporate managers, regulators and professional accountants are more or less
similar and their satisfaction level is high but investors’ perceptions are at low level. He
found and commented that the perceptions of the sample investors vary in a significant
manner from other users.
Ahmed (2009) conducted a study on only 12 general banking companies of Bangladesh.

In his study only 61 samples consisting 9 financial analysts, 12 professional accountants,
10 stock brokers, 13 accounting professors and 17 bank loan officers were taken for
evaluating the qualitative characteristics of accounting information of the sample banks.
The study found that among the reasons, a majority of the respondents use financial
reports for reading and academic interest and for holding or selling shares in their private
capacity; annual reports provide adequate and reliable data which are comparable,
readable as well as relevant. But the respondents were different in opinion regarding
compliance of IAS by the banking companies in Bangladesh.
In another study by Ali, Khan, Fatima and Masud (2008) provide a useful survey of the
attitudes of individual respondents on the different aspects of Bangladeshi annual
corporate financial reports. They evaluate the opinions of 25 individual investors and
found firstly, that British American Tobacco (BAT) Bangladesh Co. Ltd. makes very
poor disclosures on corporate governance on a voluntary basis and secondly, the users of
annual reports are in favor of such disclosure. They also found that the disclosures were
not sufficient in justifying the goal of corporate governance.
In a study in Jordan, Abu-Nasser and Rutherford (1996) exposed the view of 224 external
users including individual shareholders, institutional shareholders, bank loan officers,
stock brokers and academics of corporate reports. In terms of the usage of the annual
report, Abu-Nasser and Rutherford (1996) found bank loan officers to be the heaviest
users of the annual reports in Jordan while individual shareholders and the academics
were found to be the least. They also found that the income statement and balance sheet
to be the most widely read parts of the annual corporate reports by all groups of the users.
They found that though the annual reports are the most important source of information
170
to all users but the users are poorly satisfied over the qualitative characteristics of the
information.
Anderson and Epstein (1995) conducted another study on Australian individual investors
for evaluating the usage of annual corporate reports. They found that Australian investors
use corporate annual reports as third important basis of making investment decision after
stock brokers’ advice and financial newspapers and magazines. They found that investors
perceive income statement to be more useful than directors’ report but investors read
directors’ reports more thoroughly than income statement and investors want more
explained and simplified information and more information regarding pending litigation,
unasserted claims, management audit and information on change of auditor in annual
reports. In that study the authors did not statistically determine whether the difference
between the pattern of readership of annual reports’ sections and the perceived usefulness
of such sections of any significance in the Australian environment.
Recognizing the needs for research in this area Anderson (1981) conducted a study on
188 institutional investors in Australia to justify the importance of annual reports in
making investment decision. He found that Australian institutional investors depend
mostly on annual reports for making investment decision followed by visits to the
companies. Institutional investors mostly read balance sheet, profit and loss account,
notes to the accounts and chairman’s statement respectively. The study found that the
institutional investors want more information regarding company’s product, current value
of long term assets and remuneration of the directors in annual reports. But the study did
not statistically justify whether there is any significance difference between actual and
perceived importance of using annual reports.
Baker and Halsem (1973) performed a one of the pioneering studies in this area regarding
identification of information needs and sources of such information of the individual
investors. The study found that most of the individual investors rely heavily on stock
brokers’ advice as the main source of information regarding companies for making
investment decision but only 8% of them use financial statement for this purpose. The
authors also found that the individual investors gives emphasis on getting information
171
regarding the future expectations of the company but less importance on the dividend
performance.
8.6 Educational Qualifications of the Respondents

The highest level of educational qualifications of the respondents is stated in the Table
8.2. As per the Table, maximum 79.3% of the respondents have Masters degree, secondly
15.7% of them have only bachelor degree and only 5.0% of them have PhD degree. More
specifically, all PhD degree holders are from accounting professors, 96.7% of the bank
executives and 89.5% of the professional accountants have Masters degree but maximum
bachelor degree holders are from the investors.
Table: 8.2 showing the educational qualifications of the respondents

Educational Respondent Group
Qualifications P. A. A. P. B. E. S. B. I. V. Total
Bachelor Count 2 0 1 5 11 19
% within Res_Grop 10.5% .0% 3.3% 22.7% 37.9% 15.7%
Masters Count 17 15 29 17 18 96
% within Res_Grop 89.5% 71.4% 96.7% 77.3% 62.1% 79.3%
Ph.D. Count 0 6 0 0 0 6
% within Res_Grop .0% 28.6% .0% .0% .0% 5.0%
Total Count 19 21 30 22 29 121
% within Res_Grop 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
N.B.: P.A. = Professional Accountant, A.P. = Accounting Professor, B.E. = Bank
Executive, S.B. = Stock Broker and I.V. = Investor.
8.7 Professional Educational Qualification of the Respondents

Professional educational qualifications require to make a person specialized in a
particular field. It is better to have professional degree on accounting for better
understanding and evaluation of the quality of financial accounting reports. The study
reveals that 60.3% of the respondents have no or other professional educational
qualifications and out of the respondents having professional education 23.9% of them
either have CA or CMA or both CA and CMA degree. All professional accountants have
professional education; maximum 68.4% of the professional accountants have only CA
172
degree; 56.7% of the bank executives have MBM or Banking Diploma but 100% of the
stock brokers and 93.1% of the investors have no or other professional education.
Table: 8.3 showing the professional educational qualification of the respondents

Professional Education Respondent Group
P. A. A. P. B. E. S. B. I. V. Total
CA Count 13 2 1 0 0 16
% within Res_Grop 68.4% 9.5% 3.3% .0% .0% 13.2%
CMA Count 5 4 0 0 0 9
% within Res_Grop 26.3% 19.0% .0% .0% .0% 7.4%
Both CA and CMA Count 1 1 2 0 0 4
% within Res_Grop 5.3% 4.8% 6.7% .0% .0% 3.3%
MBM/ Banking Count 0 0 17 0 2 19
Diploma % within Res_Grop .0% .0% 56.7% .0% 6.9% 15.7%
Others or None Count 0 14 10 22 27 73
% within Res_Grop .0% 66.7% 33.3% 100.0% 93.1% 60.3%
Total Count 19 21 30 22 29 121
% within Res_Grop 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
8.8 Age Distribution of the Respondents

The age of the respondents in the study varied from below 25 years to above 55 years.
Table 8.4 reveals that maximum 30.6% of the respondents having the age of 30-35 years,
21.5% of them fall in the age of 35-40 years and 16.5% of them are in the age of 25-30
years. Further, only 5.8% of the respondents having age of more than 50 years. More
specifically 42.1% of the professional accountants are in the age of 25-30 years, 40.9% of
the stock brokers, 36.7% of the bank executives and 33.3% of the accounting professors
are in the age of 30-35 years.
8.9 Working Experience of the Respondents

To identify the working experience of the respondents, few options of range of working
experience varying from less than 5 years to more than 20 years were provided in the
questionnaire. The results tabulated in the Table 8.6 reveals that 38.0% of the respondents
have less than 5 years of working experience, 31.4% have experience of 5-10 years,
15.7% of them have experience of 10-15 years, about 10% of them have experience of
173
15-20 years and finally only 5% of them have more than 20 years of experience in their
respective area.
Table: 8.4 showing age distribution of the respondents

Age Group Respondent Group
Below 25 Count 0 0 2 1 0 3
% within Res_Grop .0% .0% 6.7% 4.5% .0% 2.5%
25-30 Count 8 1 4 6 1 20
% within Res_Grop 42.1% 4.8% 13.3% 27.3% 3.4% 16.5%
30-35 Count 4 7 11 9 6 37
% within Res_Grop 21.1% 33.3% 36.7% 40.9% 20.7% 30.6%
35-40 Count 4 3 8 2 9 26
% within Res_Grop 21.1% 14.3% 26.7% 9.1% 31.0% 21.5%
40-45 Count 3 5 1 2 4 15
% within Res_Grop 15.8% 23.8% 3.3% 9.1% 13.8% 12.4%
45-50 Count 0 3 3 2 5 13
% within Res_Grop .0% 14.3% 10.0% 9.1% 17.2% 10.7%
50-55 Count 0 1 1 0 2 4
% within Res_Grop .0% 4.8% 3.3% .0% 6.9% 3.3%
Above 55 Count 0 1 0 0 2 3
% within Res_Grop .0% 4.8% .0% .0% 6.9% 2.5%
Total Count 19 21 30 22 29 121
% within Res_Grop 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Table: 8.5 showing working experience of the respondents

Working Respondent Group
Experience P. A. A. P. B. E. S. B. I. V. Total
Less than 5 Count 10 4 14 13 5 46
years % within Res_Grop 52.6% 19.0% 46.7% 59.1% 17.2% 38.0%
5-10 years Count 5 7 9 7 10 38
% within Res_Grop 26.3% 33.3% 30.0% 31.8% 34.5% 31.4%
10-15 Count 3 3 4 1 8 19
15-20 Count 1 5 2 1 3 12
Above 20 Count 0 2 1 0 3 6
years % within Res_Grop .0% 9.5% 3.3% .0% 10.3% 5.0%
Total Count 19 21 30 22 29 121
% within Res_Grop 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
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8.10 Accounting Qualification of the Respondents
Table 8.6 shows that 30.6% of the respondents served or serving as account executives;
28.1% of them hold accounting qualifications, that is, accounting degree like bachelor or
masters in accounting; 17.4% of them serving as accounting professor and 16.5% of them
attended appropriate courses in accounting. Rationally, 100% professional accountants
served or serving as account executive and 100% accounting professors serving as
accounting teaching position.
Table: 8.6 showing accounting qualification of the respondents

Accounting Respondent Group
Qualifications P. A. A. P. B. E. S. B. I. V. Total
Worked / Working as a Count 0 0 4 1 1 6
bookkeeper % within Res_Grop .0% .0% 13.3% 4.5% 3.4% 5.0%
Attended appropriate Count 0 0 7 2 11 20
course(s) in Accounting % within Res_Grop .0% .0% 23.3% 9.1% 37.9% 16.5%
Hold Accounting Count 0 0 12 13 9 34
Qualifications % within Res_Grop .0% .0% 40.0% 59.1% 31.0% 28.1%
Served/Serving as an Count 19 0 7 6 5 37
Account Executive % within Res_Grop 100.0% .0% 23.3% 27.3% 17.2% 30.6%
Serving as Accounting Count 0 21 0 0 0 21
teaching position % within Res_Grop .0% 100.0% .0% .0% .0% 17.4%
None Count 0 0 0 0 3 3
% within Res_Grop .0% .0% .0% .0% 10.3% 2.5%
Total Count 19 21 30 22 29 121
% within Res_Grop 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
8.11 Opinion of the Respondents regarding Purposes of Using Islamic Banking

Reports
Users of accounting information use financial accounting reports for a number of reasons.
In the questionnaire of the study, the respondents were asked to identify the purpose of
using Islamic banking reports. The results of the opinion survey in this regard are as
given below:
175
Table: 8.7 showing opinion of the respondents regarding purposes of using Islamic
banking reports
Purpose of using Islamic Respondent Group
Banking Report P. A. A. P. B. E. S. B. I. V. Total
For reading and academic Count 2 18 1 0 0 21
interest % within Res_Grop 10.5% 85.7% 3.3% .0% .0% 17.4%
To decide buying, holding or Count 2 1 7 2 28 40
selling shares personally % within Res_Grop 10.5% 4.8% 23.3% 9.1% 96.6% 33.1%
To decide buying, holding or Count 1 2 5 2 0 10
selling shares for organization % within Res_Grop 5.3% 9.5% 16.7% 9.1% .0% 8.3%
To grant investment (Loan) Count 1 0 5 6 0 12
% within Res_Grop 5.3% .0% 16.7% 27.3% .0% 9.9%
To make decisions on behalf Count 11 0 10 2 1 24
of clients or employer % within Res_Grop 57.9% .0% 33.3% 9.1% 3.4% 19.8%
To advise clients Count 2 0 2 10 0 14
% within Res_Grop 10.5% .0% 6.7% 45.5% .0% 11.6%
Total Count 19 21 30 22 29 121
% within Res_Grop 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
As per the opinion of the respondents stated in Table 8.7, the highest number (that is
33.1%) of them use Islamic banking reports to decide buying, holding or selling shares
personally followed by making decisions on behalf of clients or employer (19.8%) and
reading and academic interest (17.4%). More specifically 57.9% of the professional
accountants use Islamic banking reports for making decisions on behalf of clients or
employer; 85.7% of the accounting professor use for reading and academic interest;
45.5% of the stock brokers use for advising their clients and 96.6% of the investors use
for making decision to decide buying, holding or selling shares personally.
8.12 Opinion of the Respondents regarding Mostly Read Part of Islamic Banking
Reports
An annual report contains a number of parts and different parts provide different types
and nature of information of difference importance. The respondents were asked which
part of the reports of the Islamic banks they read most. The results of the opinion of the
respondents in this regard are tabulated in Table 8.8:
176
Table: 8.8 showing opinion of the respondents regarding mostly read part of Islamic
banking reports
Mostly read parts Respondent Group
of the reports P. A. A. P. B. E. S. B. I. V. Total
Balance Sheet Count 3 7 5 4 5 24
% within Res_Grop 15.8% 33.3% 16.7% 18.2% 17.2% 19.8%
Income Statement Count 4 6 4 5 7 26
% within Res_Grop 21.1% 28.6% 13.3% 22.7% 24.1% 21.5%
Directors' Report Count 1 2 3 2 2 10
% within Res_Grop 5.3% 9.5% 10.0% 9.1% 6.9% 8.3%
Notes to the Count 8 4 2 0 1 15
Accounts % within Res_Grop 42.1% 19.0% 6.7% .0% 3.4% 12.4%
Ratios and Future Count 3 2 15 11 13 44
Projections % within Res_Grop 15.8% 9.5% 50.0% 50.0% 44.8% 36.4%
Chairman's Count 0 0 1 0 1 2
Statement % within Res_Grop .0% .0% 3.3% .0% 3.4% 1.7%
Total Count 19 21 30 22 29 121
% within Res_Grop 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Table 8.8 reveals that 36.4% of the respondent mostly read ratios and future projections
part of Islamic banking reports and a similar percentage of 21.5% and 19.8% of them
mostly read income statement and balance sheet respectively and only 12.4% of the
respondents mostly read notes to the accounts for making decision. Among the
professional accountants 42.1% emphasized on notes to the accounts and 33.3% of the
accounting professors on balance sheet but maximum bank executives, stock brokers and
investors emphasized on ratios and future projections.
In order to test whether there are significant differences among the opinion of the
respondents, we conducted χ2 test using SPSS software. Accordingly we develop a null
hypothesis as follows:
H0 1: There is no significance difference among the opinions of the respondents

regarding mostly read part of the Islamic banking reports.
The χ2 value obtained using SPSS software is 35.715 at .017 level of significance and
hence the null hypothesis is rejected which means that there is significant differences
among the opinion of the respondents regarding mostly read part of the Islamic banking
reports.
177
8.13 Opinion of the Respondents regarding Comparative Reliability of the Islamic
Banking Information
The respondents were asked whether the information provided by conventional banks is
comparatively more reliable than that of Islamic banks. The results of the opinion of the
respondents in this regard are stated in Table 8.9:
Table: 8.9 showing opinion of the respondents regarding comparative reliability of the
Islamic banking information
Comparative Respondent Group
Reliability P. A. A. P. B. E. S. B. I. V. Total
Yes Count 6 2 4 7 5 24
% within Res_Grop 31.6% 9.5% 13.3% 31.8% 17.2% 19.8%
No Count 13 19 26 15 24 97
% within Res_Grop 68.4% 90.5% 86.7% 68.2% 82.8% 80.2%
Total Count 19 21 30 22 29 121
% within Res_Grop 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
From the Table 8.9 it is observed that 80.20% of the respondents think that there is no
difference in comparative reliability of the information provided by Islamic banks and
conventional banks but 19.80% of the them opined that the information provided by
conventional banks are more reliable than that of Islamic banks.
To test whether there are significant differences among the opinion of the respondents,
we conducted χ2 test using SPSS software. Accordingly we develop a null hypothesis as
follows:

regarding comparative reliability of the information provided by Islamic banks
and conventional banks.
hence the null hypothesis is accepted which means that there is no significant differences
among the opinion of the respondents regarding comparative reliability of the
information provided by Islamic banks and conventional banks in Bangladesh.
178
8.14 Opinion of the Respondents regarding Compliance of BAS, BFRS, Companies
Act, Banking Companies Act and SEC rules, etc.
Compliance of BAS, BFRS, Companies Act, Banking Companies Act and SEC rules, etc.
is mandatory to be followed in accounting and reporting by the organizations. The
respondents were asked regarding compliance of these standards/rules by the Islamic
banks. The results of the opinion of the respondents in this regard are tabulated in Table
8.10:
Table: 8.10 showing opinion of the respondents regarding compliance of BAS, BFRS,
Compliance of BAS, BFRS, Respondent Group
Companies Act, Banking Companies
Act, and SEC Rules, etc. P. A. A. P. B. E. S. B. I. V. Total
Strongly Agree Count 5 11 16 3 6 41
% within Res_Grop 26.3% 52.4% 53.3% 13.6% 20.7% 33.9%
Agree Count 10 9 12 15 20 66
% within Res_Grop 52.6% 42.9% 40.0% 68.2% 69.0% 54.5%
Neutral Count 2 0 1 3 1 7
% within Res_Grop 10.5% .0% 3.3% 13.6% 3.4% 5.8%
Disagree Count 2 1 1 1 2 7
% within Res_Grop 10.5% 4.8% 3.3% 4.5% 6.9% 5.8%
Total Count 19 21 30 22 29 121
% within Res_Grop 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Table 8.10 shows that only 11.60% of the respondents under study either neutral or
disagree in case of compliance of IAS/BAS, IFRS/BFRS, Companies Act, Banking
Companies Act, and SEC Rules, etc. by Islamic banks in Bangladesh but 88.40% of them
agreed in this regard out of which 33.90 respondents agreed strongly.

regarding compliance of IAS/BAS, IFRS/BFRS, Companies Act, Banking
Companies Act, and SEC Rules, etc.
179
therefore the null hypothesis is accepted which means that there is no significant
differences among the opinion of the respondents regarding compliance of IAS/BAS,
IFRS/BFRS, Companies Act, Banking Companies Act, and SEC Rules, etc.
8.15 Opinion of the Respondents regarding Compliance of AAOIFI Financial

Accounting Standards
AAOIFI developed some financial accounting standards that are needed to be followed in
case of accounting and reporting by Islamic organizations. The respondents were asked
regarding compliance of AAOIFI financial accounting standards by the Islamic banks.
The results of the opinion of the respondents in this regard are tabulated in Table 8.11:
Table: 8.11 showing Opinion of the Respondents regarding Compliance of AAOIFI

Compliance of Respondent Group
AAOIFI
Standards P. A. A. P. B. E. S. B. I. V. Total
% within Res_Grop 15.8% 19.0% 40.0% .0% 3.4% 16.5%
Agree Count 10 12 16 9 16 63
% within Res_Grop 52.6% 57.1% 53.3% 40.9% 55.2% 52.1%
% within Res_Grop 21.1% 19.0% 3.3% 50.0% 34.5% 24.8%
% within Res_Grop 10.5% 4.8% 3.3% 9.1% 6.9% 6.6%
Total Count 19 21 30 22 29 121
% within Res_Grop 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
It is observed from the Table 8.11 that 6.6% respondents disagreed and 24.8% opined
neutral in case of complying AAOIFI standards by Islamic banks in Bangladesh. On the
other hand 16.5% of them strongly agreed and 52.1% simply agreed in this regard.
follows:
180
regarding compliance of AAOIFI standards by Islamic banks in Bangladesh.
therefore the null hypothesis is rejected which means that there is significant differences
among the opinion of the respondents regarding compliance of AAOIFI financial
accounting standards by Islamic banks in Bangladesh. The reason may be of having no or
poor idea regarding AAOIFI by the respondents other than bank executives.
8.16 Opinion of the Respondents regarding Adequacy of Disclosure by Islamic

Banks
Decision makers always beg for information without which accurate decision making is
almost impossible. Hence, companies should disclose adequate information in their
reports so that the users can find all necessary information for making decision. The
results of the responses regarding whether Islamic banks disclose adequate information in
the annual reports or not are presented in the following table:
Table 8.12 showing opinion of the respondents regarding adequacy of disclosure by

Islamic banks
Adequacy of Respondent Group
Disclosure P. A. A. P. B. E. S. B. I. V. Total
% within Res_Grop 5.3% .0% 6.7% .0% .0% 2.5%
Agree Count 7 15 18 15 18 73
% within Res_Grop 36.8% 71.4% 60.0% 68.2% 62.1% 60.3%
% within Res_Grop 31.6% 23.8% 23.3% 22.7% 31.0% 26.4%
% within Res_Grop 26.3% 4.8% 10.0% 9.1% 6.9% 10.7%
Total Count 19 21 30 22 29 121
% within Res_Grop 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Table 8.12 reveals that only 2.5% of the respondents strongly agreed and 60.3% simply
agreed that the information disclosed in the annual reports of the Islamic banks are
adequate but a significant number that is 26.4% of the opined neutral and 10.7%
181
disagreed in this point. Therefore, it may infer from here that respondents expect more
disclosure of information in the annual reports of Islamic banks.
follows:

regarding adequacy of disclosure by Islamic banks in Bangladesh.
differences among the opinion of the respondents regarding adequacy of disclosure by
8.17 Opinion of the Respondents regarding Effectiveness of the Information of the

Islamic Banks
The results of the opinion of the respondents regarding effectiveness of the information
provided by Islamic banks in their annual reports are as presented below in Table 8.13:
Table 8.13 showing opinion of the respondents regarding effectiveness of the information
of the Islamic banks
Effectiveness of Respondent Group
Information P. A. A. P. B. E. S. B. I. V. Total
% within Res_Grop 5.3% 23.8% 36.7% 4.5% 20.7% 19.8%
Agree Count 14 12 16 12 14 68
% within Res_Grop 73.7% 57.1% 53.3% 54.5% 48.3% 56.2%
% within Res_Grop 10.5% 14.3% 3.3% 31.8% 24.1% 16.5%
% within Res_Grop 10.5% 4.8% 6.7% 9.1% 6.9% 7.4%
Total Count 19 21 30 22 29 121
% within Res_Grop 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
From the above Table, it can be observed that 24% of the respondents under study either
neutral or disagreed regarding the effectiveness of the information provided by Islamic
182
banks but 76% of them either strongly agreed or agreed that the information is effective
in making decision.

regarding effectiveness of the information of Islamic banks.
Using SPSS software the obtained value of χ2 is 18.833 at .093 level of significance and
differences among the opinion of the respondents regarding the effectiveness of the
information provided by Islamic banks in Bangladesh.
8.18 Opinion of the Respondents regarding Usefulness of the Information of the

Islamic Banks
The results of the responses of the respondents regarding usefulness of the information
provided by Islamic banks in their annual reports are as presented below in Table 8.14:
Table 8.14 showing opinion of the respondents regarding usefulness of the information of
the Islamic banks
Usefulness of the Respondent Group
% within Res_Grop 15.8% 19.0% 36.7% 9.1% 13.8% 19.8%
Agree Count 12 14 16 14 19 75
% within Res_Grop 63.2% 66.7% 53.3% 63.6% 65.5% 62.0%
% within Res_Grop 10.5% 9.5% 3.3% 22.7% 17.2% 12.4%
% within Res_Grop 10.5% 4.8% 6.7% 4.5% 3.4% 5.8%
Total Count 19 21 30 22 29 121
% within Res_Grop 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
183
From the above table, it is seen that 19.8% respondents strongly agreed and 62.0%
merely agreed that the information of Islamic banks are useful in making decision but
12.4% responded neutral and 5.8% disagreed in this regard.
follows:

regarding usefulness of the information of Islamic banks.
differences among the opinion of the respondents regarding the usefulness of the
8.19 Opinion of the Respondents regarding Understandability of the Information of

the Islamic Banks
The results of the opinion of the respondents regarding understandability of the
information provided by Islamic banks in their annual reports are stated in Table 8.15:
Table 8.15 showing opinion of the respondents regarding understandability of the

Understandability Respondent Group
of the Report P. A. A. P. B. E. S. B. I. V. Total
% within Res_Grop 15.8% 28.6% 36.7% 4.5% 6.9% 19.0%
Agree Count 12 10 16 10 19 67
% within Res_Grop 63.2% 47.6% 53.3% 45.5% 65.5% 55.4%
% within Res_Grop 15.8% 19.0% 6.7% 36.4% 20.7% 19.0%
% within Res_Grop 5.3% 4.8% 3.3% 13.6% 6.9% 6.6%
Total Count 19 21 30 22 29 121
% within Res_Grop 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
184
Table 8.15 shows that 19.0% strongly agreed and 55.4% agreed that the information
provided by Islamic banks in their annual reports is understandable. On the other hand,
19.0% responded neutrally and 6.6% of them disagreed in this point.

regarding understandability of the information of Islamic banks.
We obtained value of χ2 is 20.414 at .060 level of significance using SPSS software and
differences among the opinion of the respondents regarding the understandability of the
8.20 Opinion of the Respondents regarding Relevancy of the Information of the

Islamic Banks
The respondents were asked regarding relevancy of the information of the Islamic banks.
The results of the responses of the respondents regarding relevancy of the information
provided by Islamic banks in their annual reports are stated in Table 8.16:
Table 8.16 showing opinion of the respondents regarding relevancy of the information of
the Islamic banks
Relevancy of Respondent Group
% within Res_Grop 5.3% 33.3% 33.3% 4.5% 13.8% 19.0%
Agree Count 14 8 18 14 19 73
% within Res_Grop 73.7% 38.1% 60.0% 63.6% 65.5% 60.3%
% within Res_Grop 21.1% 23.8% 6.7% 27.3% 17.2% 18.2%
% within Res_Grop .0% 4.8% .0% 4.5% 3.4% 2.5%
Total Count 19 21 30 22 29 121
% within Res_Grop 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
185
From the Table 8.16, we observe that 2.5% of the respondents disagreed and 18.2%
responded neutrally in case of relevancy of the information of the Islamic banks in
Bangladesh but 60.3% of them agreed and 19.0% strongly agreed in this case.
follows:

regarding relevancy of the information of Islamic banks.
differences among the opinion of the respondents regarding the relevancy of the
information provided by Islamic banks.
8.21 Opinion of the Respondents regarding Predictive Value of the Information of

the Islamic Banks
The results of the opinion of the respondents regarding predictive value of the
information provided by Islamic banks in their annual reports are tabulated in Table 8.17:
Table 8.17 showing opinion of the respondents regarding predictive value of the
Predictive Value Respondent Group
% within Res_Grop 5.3% 9.5% 20.0% 9.1% 10.3% 11.6%
Agree Count 7 13 19 6 15 60
% within Res_Grop 36.8% 61.9% 63.3% 27.3% 51.7% 49.6%
% within Res_Grop 47.4% 23.8% 6.7% 45.5% 31.0% 28.9%
% within Res_Grop 10.5% 4.8% 10.0% 18.2% 6.9% 9.9%
Total Count 19 21 30 22 29 121
% within Res_Grop 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
186
Table 8.17 shows that 11.6% of the respondents under study agreed strongly and 49.6%
agreed that the information of the annual reports of the Islamic banks has predictive
value. On the other hand, 28.9% of them opined neutral and 9.9% of them disagreed in
this regard.

regarding predictive value of the information of Islamic banks.
differences among the opinion of the respondents regarding the predictive value of the
8.22 Opinion of the Respondents regarding Feedback Value of the Information of

the Islamic Banks
The respondents were asked regarding feedback value of the information of the Islamic
banks. The results of the responses of the respondents regarding feedback value of the
Table 8.18 showing opinion of the respondents regarding feedback value of the
Feedback Value Respondent Group
% within Res_Grop .0% .0% 10.0% 9.1% 6.9% 5.8%
Agree Count 9 14 21 9 16 69
% within Res_Grop 47.4% 66.7% 70.0% 40.9% 55.2% 57.0%
% within Res_Grop 36.8% 23.8% 20.0% 40.9% 31.0% 29.8%
% within Res_Grop 15.8% 9.5% .0% 9.1% 6.9% 7.4%
Total Count 19 21 30 22 29 121
% within Res_Grop 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
187
From the above table, it can be observed that 7.4% of the respondents under study
disagreed and 29.8% opined neutral position regarding feedback value of the information
provided in annual reports of the Islamic banks but 5.8% of them strongly agreed and
57.0% simply agreed in this point.

regarding feedback value of the information of Islamic banks.
differences among the opinion of the respondents regarding the feedback value of the
8.23 Opinion of the Respondents regarding Timeliness of the Information of the

Islamic Banks
The results of the opinion of the respondents regarding timeliness of the information
provided by Islamic banks in their annual reports are presented in Table 8.19:
Table 8.19 showing opinion of the respondents regarding timeliness of the information of
Islamic banks
Timeliness of Respondent Group
% within Res_Grop 21.1% 52.4% 56.7% 18.2% 31.0% 37.2%
Agree Count 13 9 13 16 15 66
% within Res_Grop 68.4% 42.9% 43.3% 72.7% 51.7% 54.5%
% within Res_Grop 5.3% .0% .0% 9.1% 10.3% 5.0%
% within Res_Grop 5.3% 4.8% .0% .0% 6.9% 3.3%
Total Count 19 21 30 22 29 121
% within Res_Grop 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
188
Table 8.19 reveals that 37.2% of the respondents strongly and 54.5% merely opined that
Islamic banks provide information timely but only 8.3% of them either neutral or
disagree in this case.
follows:

regarding timeliness of the information of Islamic banks.
differences among the opinion of the respondents regarding timeliness of the information
provided by Islamic banks.
8.24 Opinion of the Respondents regarding Reliability of the Information of the

Islamic Banks
The respondents were asked regarding reliability of the information of the Islamic banks.
The results of the responses of the respondents regarding reliability of the information
provided by Islamic banks in their annual reports are tabulated in Table 8.20:
Table 8.20 showing opinion of the respondents regarding reliability of the information of
the Islamic banks
Reliability of Respondent Group
% within Res_Grop 15.8% 33.3% 53.3% 18.2% 17.2% 28.9%
Agree Count 9 11 11 12 18 61
% within Res_Grop 47.4% 52.4% 36.7% 54.5% 62.1% 50.4%
% within Res_Grop 31.6% 9.5% 6.7% 18.2% 10.3% 14.0%
% within Res_Grop 5.3% 4.8% 3.3% 9.1% 10.3% 6.6%
Total Count 19 21 30 22 29 121
% within Res_Grop 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
189
From the above table, it can be observed that 20.6% of the respondents either neutral or
disagreed in case of giving opinion regarding the reliability of the information provided
by Islamic banks but 28.9% strongly agreed and 50.4% of them merely agreed in this
point.

regarding reliability of the information of Islamic banks.
differences among the opinion of the respondents regarding reliability of the information
provided by Islamic banks in Bangladesh.
8.25 Opinion of the Respondents regarding Verifiability of the Information of the

Islamic Banks
The respondents were asked regarding the verifiability of the information provided by the
Islamic banks. The results of the opinion of the respondents in this regard are presented in
Table 8.21:
Table 8.21 showing opinion of the respondents regarding verifiability of the information
Verifiability of Respondent Group
% within Res_Grop 5.3% 19.0% 36.7% 4.5% 17.2% 18.2%
Agree Count 11 13 16 12 14 66
% within Res_Grop 57.9% 61.9% 53.3% 54.5% 48.3% 54.5%
% within Res_Grop 26.3% 9.5% 3.3% 22.7% 24.1% 16.5%
% within Res_Grop 10.5% 9.5% 6.7% 18.2% 10.3% 10.7%
Total Count 19 21 30 22 29 121
% within Res_Grop 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
190
Table 8.21 shows that 18.2% of the respondents strongly agreed and 54.5% agreed that
the information provided by Islamic banks in their annual reports is verifiable but 16.5%
of them are neutral and 10.7% of them disagreed in this case.
follows:

regarding verifiability of the information of Islamic banks.
differences among the opinion of the respondents regarding verifiability of the
8.26 Opinion of the Respondents regarding Faithfulness of the Information of the

Islamic Banks
The respondents were asked regarding faithfulness of the information of the Islamic
banks. The results of the responses of the respondents regarding faithfulness of the
Table 8.22 showing opinion of the respondents regarding faithfulness of the information
Faithfulness of Respondent Group
% within Res_Grop 10.5% 33.3% 43.3% 13.6% 17.2% 24.8%
Agree Count 10 12 16 13 17 68
% within Res_Grop 52.6% 57.1% 53.3% 59.1% 58.6% 56.2%
% within Res_Grop 31.6% 4.8% 3.3% 18.2% 17.2% 14.0%
% within Res_Grop 5.3% 4.8% .0% 9.1% 6.9% 5.0%
Total Count 19 21 30 22 29 121
% within Res_Grop 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
191
From the Table 8.22, it is seen that 24.8% of the respondents strongly agreed and 56.2%
simply agreed that the information of Islamic banks is faithful. But 20% of the
respondents opined either neutral or disagree in case of faithfulness of the information.

regarding faithfulness of the information of Islamic banks.
differences among the opinion of the respondents regarding the faithfulness of the
8.27 Opinion of the Respondents regarding Neutrality of the Information of the

Islamic Banks
The results of the opinion of the respondents regarding neutrality of the information
provided by Islamic banks in their annual reports are stated in Table 8.23:
Table 8.23 showing opinion of the respondents regarding neutrality of the information of
the Islamic banks
Neutrality of Respondent Group
% within Res_Grop 10.5% 23.8% 36.7% 4.5% 6.9% 17.4%
Agree Count 10 8 15 12 17 62
% within Res_Grop 52.6% 38.1% 50.0% 54.5% 58.6% 51.2%
% within Res_Grop 26.3% 33.3% 6.7% 27.3% 24.1% 22.3%
% within Res_Grop 10.5% 4.8% 6.7% 13.6% 10.3% 9.1%
Total Count 19 21 30 22 29 121
% within Res_Grop 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
192
Table 8.23 reveals that out of the respondents under study 17.4% strongly agreed and
51.2% merely agreed that the information of the Islamic banks is neutral but 22.3% of
them opined neutral and 9.1% disagreed in this regard.
follows:

regarding neutrality of the information of Islamic banks.
differences among the opinion of the respondents regarding the neutrality of the
8.28 Opinion of the Respondents regarding Comparability of the Information of the

Islamic Banks
The respondents were asked regarding comparability of the information of the Islamic
banks. The results of the responses of the respondents regarding comparability of the
Table 8.24 showing opinion of the respondents regarding comparability of the

Comparability of Respondent Group
% within Res_Grop 5.3% 14.3% 33.3% 4.5% 10.3% 14.9%
Agree Count 15 13 16 13 19 76
% within Res_Grop 78.9% 61.9% 53.3% 59.1% 65.5% 62.8%
% within Res_Grop 10.5% 19.0% 10.0% 36.4% 24.1% 19.8%
% within Res_Grop 5.3% 4.8% 3.3% .0% .0% 2.5%
Total Count 19 21 30 22 29 121
% within Res_Grop 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
193
From the Table 8.24, it can be observed that 2.5% of the respondents thought negatively
and 19.8% opined their neutral position regarding comparability of the information of the
Islamic banks but 14.9% shows their strong positive position and 62.8% shows simple
positive stance in this point.

regarding comparability of the information of Islamic banks.
differences among the opinion of the respondents regarding comparability of the
8.29 Opinion of the Respondents regarding Consistency of the Information of the

Islamic Banks
The results of the opinion of the respondents regarding consistency of the information
provided by Islamic banks in their annual reports are presented in Table 8.25:
Table 8.25 showing opinion of the respondents regarding consistency of the information
Consistency of Respondent Group
% within Res_Grop 5.3% 23.8% 30.0% 4.5% 10.3% 15.7%
Agree Count 13 13 19 15 16 76
% within Res_Grop 68.4% 61.9% 63.3% 68.2% 55.2% 62.8%
% within Res_Grop 15.8% 4.8% 6.7% 22.7% 24.1% 14.9%
% within Res_Grop 10.5% 9.5% .0% 4.5% 10.3% 6.6%
Total Count 19 21 30 22 29 121
% within Res_Grop 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
194
It can be observed from the Table 8.25 that 15.7% of the respondents strongly agreed and
62.8% of them merely agreed that Islamic banks provide consistence information in their
annual reports but 6.6% of them disagreed and 14.9% opined neutral in this case.

regarding consistency of the information of Islamic banks.
differences among the opinion of the respondents regarding consistency of the
8.30 Opinion of the Respondents regarding Effectiveness of Accounting Information

Systems of the Islamic Banks
The respondents were asked regarding effectiveness of accounting information systems
of the Islamic banks. The results of the responses of the respondents in this regard are
presented in Table 8.26:
Table 8.26 showing opinion of the respondents regarding effectiveness of accounting

information systems of the Islamic banks
Effectiveness of Accounting Information Respondent Group
Systems P. A. A. P. B. E. S. B. I. V. Total
% within Res_Grop 5.3% 19.0% 30.0% 4.5% 17.2% 16.5%
Agree Count 11 11 14 15 13 64
% within Res_Grop 57.9% 52.4% 46.7% 68.2% 44.8% 52.9%
% within Res_Grop 31.6% 19.0% 23.3% 22.7% 37.9% 27.3%
% within Res_Grop 5.3% 9.5% .0% 4.5% .0% 3.3%
Total Count 19 21 30 22 29 121
% within Res_Grop 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
195
Table 8.26 shows that 27.3% of the respondents surveyed opined neutral and 3.3% of
them disagreed regarding the effectiveness of accounting information systems of the
Islamic banks. On the other hand 52.9% of them simply and 16.5% strongly agreed in
this regard.
follows:

regarding effectiveness of the accounting information systems of Islamic banks.
differences among the opinion of the respondents regarding the effectiveness of
accounting information systems of the Islamic banks in Bangladesh.
8.31 Opinion of the Respondents regarding Compliance of Rules regarding

Appointment of Auditors of the Islamic Banks
Quality of information also depends on the quality of audit firms and compliance of rules
regarding their appointment. The respondents were asked regarding compliance of rules
regarding appointment of auditors of the Islamic banks. The results of the responses of
the respondents in this regard are tabulated in Table 8.27:
Table 8.27 showing opinion of the respondents regarding appointment of auditors of the
Islamic banks
Appointment of Respondent Group
Auditors P. A. A. P. B. E. S. B. I. V. Total
% within Res_Grop 15.8% 42.9% 43.3% 36.4% 13.8% 30.6%
Agree Count 13 11 16 13 24 77
% within Res_Grop 68.4% 52.4% 53.3% 59.1% 82.8% 63.6%
% within Res_Grop 5.3% 4.8% 3.3% 4.5% 3.4% 4.1%
% within Res_Grop 10.5% .0% .0% .0% .0% 1.7%
Total Count 19 21 30 22 29 121
% within Res_Grop 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
196
On the basis of the Table 8.27, it can be said that 30.6% of the respondents strongly
agreed and 63.6% of them merely agreed that regarding compliance of all rules and
regulations of appointment of auditors by the Islamic banks. But 5.8% of them opined
either neutral or disagree in this point.

regarding appointment of auditors of Islamic banks.
differences among the opinion of the respondents regarding compliance of all rules and
regulations of appointment of auditors by the Islamic banks.
8.32 Opinion of the Respondents regarding Quality of Audit of the Islamic Banks
Quality audit is expected to produce quality information. The respondents were asked
regarding quality of audit of the Islamic banks. The results of the responses of the
respondents in this regard are presented in Table 8.28:
Table 8.28 showing opinion of the respondents regarding quality of audit of the Islamic
banks
Quality of Audit Respondent Group
% within Res_Grop 10.5% 47.6% 30.0% 9.1% 10.3% 21.5%
Agree Count 13 10 19 18 22 82
% within Res_Grop 68.4% 47.6% 63.3% 81.8% 75.9% 67.8%
% within Res_Grop 10.5% 4.8% 3.3% 4.5% 10.3% 6.6%
% within Res_Grop 10.5% .0% 3.3% 4.5% 3.4% 4.1%
Total Count 19 21 30 22 29 121
% within Res_Grop 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
197
From the Table 8.28, it can be observed that 21.5% of the respondents agreed strongly
and 67.8% of them simply agreed regarding quality audit of the financial reports of the
Islamic banks but 10.7% of them opined differently in this regard.
follows:

regarding quality audit of the financial reports of Islamic banks.
differences among the opinion of the respondents regarding quality audit of the financial
reports of the Islamic banks in Bangladesh.
8.33 Findings of the Survey

On the basis of the analysis of the perceptions of the respondents, the findings of the
study may be stated as below:
(a) Most of the respondents think that there is no difference in comparative reliability
of the information provided by Islamic banks and conventional banks but few
professional accountants and stock brokers think that the information provided by
conventional banks are more reliable than that of Islamic banks.
(b) Maximum respondents thought that in maintaining quality of disclosure, Islamic
banks in Bangladesh could maintain high quality in case of timeliness, faithfulness,
usefulness, relevance and reliability of information.
(c) In maintaining quality of disclosure, Islamic banks in Bangladesh could maintain
moderate quality in case of consistency, comparability, effectiveness,
understandability and verifiability of information.
(d) Maximum respondents thought that Islamic banks in Bangladesh could not maintain
high quality of information in case of predictive value, feedback value, adequacy,
neutrality and effectiveness of accounting information system.
(e) Islamic banks highly comply BAS, BFRS, Companies Act, banking Companies
Act, SEC rules, etc. in preparing books of accounts and also comply rules of
198
appointment of auditors and quality of audit in case of reporting of the information
to its stakeholders. But the opinion of the respondents is not satisfactory and
indifferent regarding complying AAOIFI financial accounting standards.
(f) The highest number of the respondents uses Islamic banking reports to decide
buying, holding or selling shares personally followed by making decisions on
behalf of clients or employer and reading and academic interest. More specifically,
maximum professional accountants use Islamic banking reports for making
decisions on behalf of clients or employer; maximum accounting professors use for
reading and academic interest; maximum stock brokers use for advising their clients
and almost all investors use for making decision to decide buying, holding or
selling shares personally.
(g) Maximum of the respondents mostly read ratios and future projections part of
Islamic banking reports followed by income statement and balance sheet for making
decision. Specifically, maximum professional accountants emphasize on notes to
the accounts and maximum accounting professors read balance sheet but maximum
bank executives, stock brokers and investors emphasized on ratios and future
projections.
8.34 Conclusion
This chapter provides the overall results of the opinion of the respondents regarding the
reporting policy, status and quality of financial information of the Islamic banks in
Bangladesh. As an important source of information of the users of annual reports, the
users highly depend on this information for making decision regarding that particular
enterprise. But if the reporting policy, volume and quality are not satisfactory to the users
then the whole reporting process goes in vain. Hence, quality of disclosure is a must to
make accurate decision by the users of the accounting information. As per the present
study, the quality of Islamic banking disclosure process and accounting information may
be said to be satisfactory. As the quality has no highest limit and as there are some lack of
quality in few areas of reporting, Islamic banks should try to improve the quality in those
areas. Through the analysis and discussion, it is supposed to satisfy the objective no. 4 of
the study ‘to evaluate the quality of the reporting of the existing accounting and reporting
practices in the Islamic banks.’
199
9.1 Introduction
This is the summary chapter which includes a review of the previous chapters to identify
the findings of the present study, the contribution of this study, recommendations for
improvement of accounting and reporting of Islamic banking sector in Bangladesh,
direction for further research, and conclusion. The objectives of the present study were to
describe the legal framework regarding accounting and reporting of the Islamic banking
sector in Bangladesh; to examine the present status of accounting and reporting practices
in the Islamic banks; to evaluate the quality of the reporting of the existing accounting
practices in the Islamic banks; to assess whether there is any significant impact of
industry attributes on the quality of accounting practice of Islamic banks; and to provide
suggestions to improve the accounting practices in Islamic banks in Bangladesh.
9.2 Major Findings of the Study

The main findings of the study are recapitulated under different chapters as follows:
(a) After getting the discussion of the legal framework of accounting and reporting
practices of banking sector in Bangladesh it is observed that the legal and regulatory
frameworks are complicated and in comparison with conventional banks Islamic
banks requires complying more rules and regulations because different regulatory
bodies imposed different laws, rules and regulations for compliance. These rules and
regulations in some of the cases are old, contradictory and overlapping with each
other. Hossain (2012) also stated that the Islamic banks are to abide by more rules and
regulations than conventional banks, that is, AAOIFI standards, IFSB standards,
Shariàh requirements, etc. are not complied by conventional banks. Sobhan and
Werner (2003) expressed that the process of banking regulations are complex in
Bangladesh. On the basis of the empirical results of the opinion survey, Alam (2007)
found that legal system in terms of implementation is the main cause of poor
disclosure of Bangladesh.
(b) As per sample wise overall disclosure levels of the 7 sample banks, disclosure is the
highest in case of sample # 1 (IBBL) and least in case of sample # 7 (FSIBL). These
findings justify the Certificate of Appreciation for the published accounts of 2001,
Certificate of Merit for 2008 and third prize for the published accounts of 2010 of
IBBL. Overall disclosure might be judged relatively good in all sample banks as the
200
highest score in sample #1 is 89.62% and lowest score in sample # 7 is 67.07% (table
6.1) of the maximum attainable of 144 under the mandatory and voluntary elements
of the index and no bank disclosed less than 65%. Sample wise paired sample t test
showed that there is significant difference in disclosure score among the sample
banks. Year wise disclosure showed that the highest score in the year 2010 is 89.62%
and lowest score in the year 2006 & 2007 is 67.07% (table-6.2). Year wise paired
sample t test showed that there is no variation in year to year disclosure score among
sample banks. The trend line showed (graph-6.2) that though it is slow but over the
year, there is an increasing trend in volume of disclosure by the sample Islamic banks
in Bangladesh. If we consider the means of the UDI of different part of annual report
as indicator of overall disclosure levels of the years 2006-2010, highest disclosure
score has been observed in the section ‘Company Profile Items (CPI)’ and the lowest
by ‘Projections and Budgetary Disclosure (PBD)’ (table-6.7).
The study of Ahmed (2009) found that the 12 sample banks in Bangladesh on an
average disclosed 50.40% of the expected information in annual reports and IBBL
achieved third position in disclosure score for the period 2002 to 2006. Pandit,
Hossain & Khatun (2011) found that the compliance rate was 67.34% by the 25
conventional and Islamic sample banks in Bangladesh. The present study found that
on an average, the sample Islamic banks disclosed 77.01% of the expected
information in the annual reports for the period from 2006 to 2010. Hossain (2012)
found that the compliance rate was 88.11% by the Islamic banks in Bangladesh in
annual report of 2010. From the above discussion, it can be said that generally
banking companies and particularly Islamic banking companies in Bangladesh are
gradually increasing the volume and quality of disclosure in their annual reports.
(c) Chapter Seven reported the results of multiple linear regressions to test the
relationship between a number of industry attributes and the volume of information
disclosed in the annual reports of Islamic banks in Bangladesh. The volume of
information disclosure was measured using un-weighted disclosure index. From the
analysis of this chapter, it is found that the volume of disclosure is related with some
of the industry attributes. As per the study only three variables representing the size
of the banks, that is, TA, GR, and NOB are significantly determining the volume of
201
disclosure at 5% level in each individual year and in the study period as a whole. At
10% level of significant EPS is also affecting the volume of disclosure in 2009 and
2010. If consider of the whole study period from year 2006 to 2010, the age of the
Islamic banks are also found to be significantly correlated with the level of disclosure.
The other variables were found insignificant in determining the volume of
information disclosure in annual reports.
(d) Most of the respondents think that there is no difference in comparative reliability of
the information provided by Islamic banks and conventional banks but few
professional accountants and stock brokers think that the information provided by
conventional banks are more reliable than that of Islamic banks. Maximum
respondents also opined that in maintaining quality of disclosure, Islamic banks in
Bangladesh could maintain high quality in case of timeliness, faithfulness, usefulness,
relevance and reliability of information and could maintain moderate quality in case
of consistency, comparability, effectiveness, understandability and verifiability of
information. But maximum respondents thought that Islamic banks in Bangladesh
could not maintain high quality of information in case of predictive value, feedback
value, adequacy, neutrality and effectiveness of accounting information system. It
was also found from the opinion survey that Islamic banks highly comply BAS,
BFRS, Companies Act, banking Companies Act, SEC rules, etc. in preparing books
of accounts and also comply rules of appointment of auditors and quality of audit in
case of reporting of the information to its stakeholders. But the opinion of the
respondents is not satisfactory and indifferent regarding complying AAOIFI financial
accounting standards.
202
9.3 Recommendations of the Study
The study recommends some measures to be taken to improve the quality of accounting
and reporting practices of Islamic banks in Bangladesh. The recommendations are as
given below:
a) There should have a single set of comprehensive rules and regulations instead of a
number of laws so that the Islamic banking companies can easily comply and
there should have a single regulatory body under which Islamic banks will
maintain their accounting and reporting activities. In this regard, Hossain (2011)
suggested that it would be very easy for banks to comply with accounting and
reporting requirements if the Banking Companies Act 1991 makes it mandatory to
compile all of the disclosure requirements.
b) The researchers and regulatory bodies should conduct more research to formulate
a single set of all-inclusive rules and regulations and newly established
Compliance Department of Bangladesh Bank may play vital role in this regard. In
this regard, Alam (2007) the legal system should be more active so that there will
be no scope of reluctance of implementation of law and same sets of books of
accounts should be kept in all the similar type of firms to make accounting and
reporting cost effective and to minimize confusions among the firms and also
among the stakeholders as well.
c) In case of determining the accounting and reporting requirements, the regulatory
bodies in Bangladesh should give more emphasis on the requirements of AAOIFI
and IFSB disclosure requirements. To avoid conflict and overlapping, Hossain
(2012) suggested that as per the guidelines of IFSB 4, Bangladesh Bank should
come forward to find ways of harmonizing the differences among different
legislations and in compiling all of the requirements regarding financial
statements of banks under Islamic Shariàh, Bangladesh Bank may modify BRPD
Circular No. 15/2009.
d) Islamic banks should report maximum information in their annual report
maintaining quality in all the areas as Islam always gives emphasis on full
disclosure so that the users of their report can get their required information.
Hossain (2012) opined that most of the customers of Islamic banks are religious
203
by nature and want to comply with Shariàh and for which it is important for
Shariàh based banks to obey all of the laws, regulations and guidelines and it is
also important to ensure the transparency by making proper disclosures.
e) Customers of the Islamic banks may also play their role in case of motivating the
banks in complying rules and regulations and reporting maximum information in
their annual reports. If the customers evaluate the banks on the basis of
accounting and reporting quality in case of opening accounts, making deposits,
purchasing shares, etc. then it is expected that the banks which are reporting lower
information will compel to comply and report accurately.
9.4 Contribution of the Study

Many elements of the present study are the replication of previous similar studies but it
consists of some special qualifications. The present study is a unique study which
evaluates the accounting and reporting practices only of Islamic banks in Bangladesh
with a greater amount of information base for construction of disclosure index for five
year study period starting from 2006 to 2010. This study fulfills the gap of a rigorous
study in accounting and reporting practices of full fledged Islamic banks in Bangladesh
taking 100% population as sample for comparatively a longer period of five years time.
This study is a unique in using both primary, that is, opinion survey and secondary data,
that is, annual reports for examining the quality of reporting of the sample banks and the
opinion survey was conducted among a larger number of users of the annual reports of
the Islamic banks in Bangladesh.
The findings of the study are also unique because the study found that the Islamic banks
in Bangladesh are comparatively disclosing more information and the disclosure of the
Islamic banks are influenced by size of the Islamic banks represented by total assets,
gross revenue and number of branches and also by the age of the Islamic banks. The
study also revealed that the Islamic banks in Bangladesh require complying more legal
requirements than that of the conventional banks and other organizations in Bangladesh.
204
9.5 Practical Implications
The practical implications of this study can be provided as under:
a) Users of annual reports and financial statements of Islamic banking companies in
Bangladesh can know the required reporting information and evaluate the status
of his bank in this regard.
b) Researchers may find new avenues for conducting future works from the direction
for further studies of this thesis.
c) Islamic banks in Bangladesh may get help in complying required reporting
information in the annual reports of the banks.
d) Regulatory bodies may find necessary materials for making any amendments if
they want to make any change in the acts, rules and regulations for accounting
and reporting of Islamic banking companies in Bangladesh.
9.6 Direction for Further Research

The present study has attempted to evaluate the legal framework, present status,
qualitative characteristics of accounting and reporting practices and the impact of
corporate attributes on accounting and reporting practices of Islamic banks in
Bangladesh. But there are many untouched areas of study regarding accounting and
reporting practices in Islamic banks in Bangladesh in which one can carry out further
research. The possible research areas may be as below:
a) Comparative analysis of the accounting and reporting practices of Islamic and
Traditional Banks in Bangladesh.
b) Environmental accounting and reporting practices of Islamic Banks in
Bangladesh.
c) Human Resource accounting and reporting practices of Islamic Banks in
Bangladesh.
d) Corporate Social Responsibility reporting practices of Islamic Banks in
Bangladesh.
e) Impact of accounting and reporting of financial information on stock prices in
capital market in Bangladesh.
205
f) Harmonization of accounting and reporting of Islamic and Traditional Banks in
Bangladesh.
g) Role of accounting and reporting practices in Islamic Banks as Corporate
Governance Mechanism in Bangladesh.
h) Comparative analysis of the perceptions of users on accounting information
provided by Islamic and Traditional Banks in Bangladesh.
i) Islamization of accounting and reporting practices for Islamic banks.
9.7 Conclusion
The present study is relatively a rigorous study of accounting and reporting practices of
Islamic banks in Bangladesh. The study found that the accounting and reporting practices
of Islamic banks in Bangladesh are good and the banks are reporting sufficient
information in the annual reports complying almost all the rules and regulations. All the
Islamic banks report mandatory information but volume of information disclosure differs
in disclosing voluntary information in annual reports. As per the opinion of the
respondents, there is no difference in comparative reliability of the information provided
by Islamic banks and conventional banks. Maximum respondents also opined that in
maintaining quality of disclosure, Islamic banks in Bangladesh could maintain high
quality in case of timeliness, faithfulness, usefulness, relevance and reliability of
information. As per the study only three variables representing the size of the banks, that
is, TA, GR, and NOB are significantly determining the volume of disclosure at 5% level
in each individual year and in the study period as a whole. The results may differ if
different sample is used for study.
206
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Appendix # 1
Year-wise t test
Pair No. Sample No. Result of t Significance level Significant
value
Pair 1 Sample # 1 vs. Sample # 2 8.386 .001 √
Pair 8 Sample # 2 vs. Sample # 4 0.835 .451 -
Pair 12 Sample # 3 vs. Sample # 4 -17.210 .000 √
Pair 13 Sample # 3 vs. Sample # 5 -11.888 .000 √
Appendix # 2
Year-wise t test
Pair No. Year Result of t value Significance level Significant
Pair 1 2006 vs. 2007 -1.406 .209 -
Pair 2 2006 vs. 2008 -1.493 .186 -
Pair 3 2006 vs. 2009 -1.277 .249 -
Pair 4 2006 vs. 2010 -1.460 .195 -
Pair 5 2007 vs. 2008 -0.858 .424 -
Pair 6 2007 vs. 2009 -0.961 .374 -
Pair 7 2007 vs. 2010 -1.242 .260 -
Pair 8 2008 vs. 2009 -0.500 635 -
Pair 9 2008 vs. 2010 -0.726 .495 -
Pair 10 2009 vs. 2010 -1.000 .356 -
Appendix-3
Un-weighted Index of Disclosure with Corresponding Score
Fraction Score Sub-Total
A Company Profile Items
1. Name of the Bank 1
2. Corporate Headquarters 1
3. Date of Incorporation 1
4. Year of Incorporation as a limited liability Company 1
5. Year of listing on the DSE 1
6. Bank’s Audit Firm(s) 1
7. Corresponding figures of preceding period 1 7
B Accounting Policy Items
1. Basis of Accounting 1
2. Subsequent Events after the Balance Sheet Date 1
3. Consolidated Policy (if any) 1
4. Reporting Currency 1
5. Methods of Revenue Recognition 1
217
6. Changes in Accounting Policy and their cumulative effects 1
7. Basis of Measurement (Historical or other) 1
8. Methods of calculating EPS 1
9. Changes in Accounting Estimates 1
10. Disclosure of monetary impact of any change in accounting policy 1
11. Changes in accounting principles 1
12. Information about compliance of IAS 1 12
C Balance Sheet Items (Assets)
Details about quick assets
1. (i) Cash in hand (including foreign currency) .20
(ii) Balance with Bangladesh Bank (BB) and Sonali Bank .20
(iii) Treasury bills and other bills eligible for rediscounting with BB .20
(iv) Balance with other banks and financial institutions-in Bangladesh .20
(v) Balance with other banks and financial institutions-outside Bangladesh .20 1
2. Money at call and short notice 1
3. (i) Cash and cash equivalents .50
(ii) Accruals and deferred income .50 1
4. Information on disclosure of investment items-
(i) Treasury bills-1 .10
(ii) National Investment Bonds-1 .10
(iii) Prize Bonds .10
(iv) Debenture .10
(v) Other Bonds-1 .10
(vi) Shares .10
(vii) Debenture and Bonds .10
(viii) Gold .10
(ix) Worthless stock .10
(x) Other investments .10 1
5. Information relating to investment-
(i) Cost of marketable securities .20
(ii) Market value of marketable securities .20
(iii) Investment accounted for using the equity method .20
(iv) Portfolio investment .20
(v) Valuation Basis .20 1
Information relating to fixed assets- 1
6. Classification of Fixed assets 1
7. Cost 1
8. Market 1
9. Revaluation amount 1
10. Basis of Valuation
11. Information as to other assets- .33
(i) Commission and Brokerage on shares and debentures .33
(ii) Preliminary formation and organization expenses (if it is capitalized) .34 1
(iii) Development and prepaid expenses (if it is capitalized)
12. Information relating to- .25
(i) Branch adjustments (Contra Entry) .25
(ii) Prepaid rent and deferred advertisement (if it is periodical) .25
(iii) Assets acquired in satisfaction of claims (Contra Entry) .25 1
(iv) Other security deposits and other assets 1
13. Non-banking assets (classified)
Details about Investments and advances .50
14. (i) Investments-In Bangladesh .50 1
(ii) Investments-Outside Bangladesh .50
15. (i) Bills discounted and purchased-payable in Bangladesh (Contra Entry) .50
(ii) Bills discounted and purchased-payable outside Bangladesh (Contra Entry) .33 1
16. (i) Placement with, and investments and advances to, other bank .33
(ii) Other market placements .34
(iii) Investments and Advances to Customers .20 1
17. (i) Classification amount .20
(ii) Doubtful amount .20
(iii) Bad amount .20
(iv) Investment taken by directors and officers of the banking company .20
(v) Information about security of investment 1
18. Information as to intangible assets- .33
(i) Goodwill .33
(ii) Other intangible assets .34
(iii) Amortization policy 1 18
D Balance Sheet Items (Liabilities)
1. Details about shareholders’ interest
(i) Issued Capital .50
218
(ii) Shareholders’ Equity or Paid-up capital .50 1
(i) Provisions .25
(ii) Provision for taxation .25
(iii) Provision for investments and profit suspense accounts .25
(iv) Provision for bad and doubtful investment .25 1
(i) Statutory Reserve .25
(ii) Revaluation Reserve (if not capitalized) .25
(iii) Surplus profit and loss account .25
(iv) Gratuity and benevolent fund .25 1
(i) Commitments- Directors (classified) .50
(ii) Commitments- Contingent liabilities .50 1
5. Details about-
(i) Borrowing from other banks in Bangladesh .25
(ii) Borrowing from agents, financial institutions & banks outside Bangladesh .25
(iii) Secured borrowing amount .25
(iv) Unsecured borrowing amount .25 1
(i) Nature and amount of security given .33
(ii) Other commitments .33
(iii) Other borrowed fund .34 1
7. Information as to principal deposits-
(i) Current deposits and other accounts with rate of profits .33
(ii) Fixed deposits or customers’ deposits .33
(iii) Savings bank deposits .34 1
(i) Balances with the Central Bank .33
(ii) Placements with other Banks .33
(iii) Other money market placements and money market deposits .34 1
(i) Amount owed to other depositors .25
(ii) Certificate of Deposits .25
(iii) Deposits from other Banks .25
(iv) Other Deposits .25 1
(i) Long-term Debt with Security .25
(ii) Particular of Redemption of long-term Debt .25
(iii) Current portion of long-term Debt .25
(iv) Mortgages on assets against investment in Bangladesh .25 1
(i) Pension or insurance funds .25
(ii) Non-current profit bearing liabilities .25
(iii) Rate of profit .25
(iv) Conversion feature .25 1
12. Information relating to-
(i) Repayable on demand .25
(ii) Promissory notes and other liabilities evidenced by paper .25
(iii) Unclaimed dividends .25
(iv) Advanced payments and bill purchased (Contra Entry) .25 1
13. Details as to-
(i) Liabilities to subsidiary companies .25
(ii) Proposed dividend .25
(iii) Prepaid deferred tax at the end of the period .25
(iv) Minority interest .25 1
(i) Bills payable .25
(ii) Trade and other payable .25
(iii) Income tax payable .25
(iv) Profit payable .25 1
(i) Profit paid on deposits .33
(ii) Profit paid on borrowings .33
(iii) Bearer Certificate of deposit .34 1 15
E Income Statement Items (Cr.)
1. Details as to-
(i) Profit Income from investment and advances to customers .20
(ii) Profit and similar Income .20
(iii) Profit income from accounts with foreign banks .20
219
(iv) Profit income from debentures .20
(v) Profit on bill and treasury bills .20 1
2. Income from balances with other banks /financial institutions 1
3. Details about-
(i) Commission on the allotment of shares to a client .50
(ii) Other commission income .50 1
(i) Fees earned and services are provided .25
(ii) Fees earned on the execution of a significant work .25
(iii) Fees charged for servicing a investment .25
(iv) Fees from the development of customized software .25 1
5. Details as to-
(i) Investment income .50
(ii) Gains less losses arising from investment securities .50 1
(i) Profit from ordinary activities .25
(ii) Profit from operations .25
(iii) Profit from invested shares .25
(iv) Dividend income .25 1
(i) Gains less losses arising from dealing securities .25
(ii) Gains arising from dealing securities .25
(iii) Gains on foreign currency transaction .25
(iv) Gains less losses arising from dealing in foreign currencies .25 1
(i) Non-banking income .50
(ii) Income from non-banking assets .50 1
9. Information on income from rent, taxes, insurance, License fees, royalties and other
operating income 1 9
F Income Statement Items (Dr.)
(i) Salaries, allowances and fees .20
(ii) Stationary, Postage, Stamp etc. and General administrative expenses .20
(iii) Printing and advertisement expenses .20
(iv) Internet, Telegram, Telephone and communication expenses .20
(v) Fess and communication expenses .20 1
(i) Foreign exchange loss .25
(ii) Loss from ordinary activities .25
(iii) Losses on foreign currency transaction .25
(iv) Losses on investments and advances .25 1
(i) Legal expenses .50
(ii) Taxes on income .50 1
(i) Chairman and Directors’ Remuneration .50
(ii) Auditors’ fees .50 1
(i) Dividend paid for the period .50
(ii) Appropriations against profit on Dividends .50 1
(i) Provision for classified investments and advances .20
(ii) Provisions for gratuities .20
(iii) Provision for diminution value of investment securities (if it is apprehend) .20
(iv) Provision for decline in value of trading securities and other Provisions .20
(v) Bad and doubtful provisions on investment and Provision for bad and doubtful
debts against adversely classified and advances .20 1
(i) Appropriation against profit on Statutory Reserve .50
(ii) Appropriation against profit on General Reserve .50 1
8. Details as to-
(i) Depreciation of fixed assets and amortization expenses .20
(ii) Repair expenses of Machinery .20
(iii) Repair expenses of Furniture .20
(iv) Repair expenses of Buildings .20
(v) Depreciation on repairs and maintenance .20 1
(i) Profit paid on foreign bank accounts .25
(ii) Profit paid and similar charges .25
(iii) Tax expenses for the period .25
220
(iv) Tax, including deferred taxes .25 1
10. Disclosure as to-
(i) Extraordinary Items-loss on expiration of car engine .20
(ii) Extraordinary Items-Insurance proceeds from earthquake disaster settlement .20
(iii) Losses arising from dealing securities .20
(iv) Foreign Currency Transaction and Hedging .20
(v) Other operating expenses .20 1
(i) Amount expended on human resource .20
(ii) Loss from sale of or dealing with non-banking assets .20
(iii) Allowances for doubtful debts .20
(iv) Charitable donations .20
(v) Zakat expense, Zakat fund and Rate of Zakat .20 1 11
G Information useful to Projections and Budgetary Disclosure
1. Disclosure as to loss on sale of investment 1
2. Disclosure as to profit on sale of investment 1
3. Disclosure as to loss on unusual Items 1
4. Disclosure as to provision for diminution in the value of investment 1
5. Information as to proposed capital expenditure in near future 1
6. Information about offer of new services 1
7. Information about labor management relationship 1
8. Information about number of days in strike by the employers (yearly) 1
9. Information about bank’s issuing bonus shares 1
10. Information about pension and retirement plans 1
11. Information about employees social welfare scheme 1
12. Information about number of cases filed for recovery of investment 1
13. Information about cash inflow 1
14. Information about cash outflow 1
15. Information relating to sale of property and other assets 1
16. Information relating to transfer of research and development 1
17. Inflation adjusted accounts 1
18. Information about Tax refunds Receivable 1 18
H Ratios, Statistics and other Details
Information about ratios indicating profitability
1. Return on Capital Employed 1
2. Return on Shareholders’ Equity 1
3. Return on Equity Funds 1
4. EPS 1
5. DPS 1
6. Earning yield 1
7. Dividend yield 1
8. Rate of return on investment 1
9. Return on total assets 1
Information about ratios indicating solvency
10. Debt-Equity Ratio 1
11. Debt to total Capital Ratio 1
12. Debt to Total Assets Ratio 1
13. Proprietary Ratio 1
14. Capital Gearing Ratio 1
15. Profit Coverage Ratio 1
16. Dividend Coverage Ratio 1
17. Total Coverage Ratio 1
18. Cash Flow Coverage Ratio 1
Information relating to statistics and other details
19. Comparative Income Statement (at least one year) 1
20. Comparative Balance Sheet (at least one year) 1
21. Cash budgeting projection up to 5 years 1
22. Extent of dependence on a few customers 1
23. Review of the year and prospects for the future (discussion of the factors which will
influence bank’s next year performance) 1
24. Forecast of next year’s earnings 1
25. Statement of the bank’s objectives and policies 1
26. No. of Shareholders and shares held by them 1
27. Information on number of employees 1 27
I Information useful to Measurement and Valuation Method
1. Amount of Depreciation 1
2. Fixed assets valuation method 1
3. Basis of overall valuation 1
4. Method used in calculating depreciation 1
5. Depreciation policy 1
221
6. Consistency of the method, rate of depreciation 1
7. Rate of Depreciation 1
8. Gains and losses on disposal of property 1
9. Pension costs and retirement plans 1
10. Estimated useful life and change in estimate (if any) 1
11. The reason for change in method and rate of depreciation 1
12. The monetary impact on profit 1
13. The tax effect for the change 1
14. Consistency of useful lives of assets 1
15. Disclosure of significant inter banking transactions 1
16. Disclosure about related party transactions 1
17. Accounting policy adopted for the recognition of revenue 1
18. Methods adopted to determine the stage of completion of transactions 1
19. Disclosure of significant category of revenue recognized during the period 1
20. The nature and amount of commitments to extent investment that are irrecoverable 1
21. The nature and amount of contingent liabilities and commitments arising from off balance
sheet items 1
22. Disclosure of maturity date of liabilities 1
23. Disclosure of significant concentration of assets and liabilities and off balance sheet items
in terms of geographical areas, customer or industry groups or other concentration risks 1
24. Disclosure of significant net foreign currency exposure 1
25. Accounting policy on the basis of which uncollectible investments and advances are
recognized as an expense and written-off 1
26. Disclosure about appropriation of retained earnings 1
27. Disclosure of secured liabilities and the carrying amount of the assets pledged as security 1 27
Grand Total 144
Appendix # 4
7.00 6.00 6.00 7.00 7.00 6.20 7.00
CPI 100% 85.71% 85.71% 100% 100% 88.57% 100%
7.40 6.40 7.00 7.40 8.00 6.40 6.20
API 61.67% 53.33% 58.33% 61.67% 66.67% 53.33% 51.67%
14.48 13.90 10.98 10.25 9.94 10.77 10.22
BSIA 80.44% 77.22% 61.00% 56.94% 55.22% 59.83% 56.78%
9.39 9.21 8.32 9.55 8.07 9.17 8.49
BSIL 62.6% 61.4% 55.48% 63.68% 53.80% 61.13% 56.6%
6.97 5.00 4.65 5.35 5.85 5.82 4.66
ISIC 77.44% 55.56% 51.67% 59.44% 65.00% 64.67% 51.78%
8.33 6.82 6.75 5.90 6.90 6.90 6.83
ISID 75.73% 62.00% 61.36% 53.64% 62.73% 62.73% 62.09%
9.00 7.40 6.20 8.00 7.00 5.20 5.80
PBD 50.00% 41.11% 34.44% 44.44% 38.89% 28.89% 32.22%
12.20 11.40 10.00 11.00 12.00 10.00 9.00
RSD 45.19% 42.22% 37.04% 40.74% 44.44% 37.04% 33.33%
14.40 13.00 14.00 14.00 13.00 12.00 10.00
MVM 53.33% 48.15% 51.85% 51.85% 48.15% 44.44% 37.04%
222
Appendix # 5
Questionnaire
on
Dear Sir,
Assalamualaikum Warahmatullah-------
Accounting and Reporting is a part and parcel of today’s life which reveals the real financial
and non-financial situation of a person or organization. Owners/Stockholders, Regulatory
Bodies, Taxing Authorities, Investors, Creditors, and Financial Analysts use accounting
reports as the basis of making decisions. Accounting and Reporting Practices affects the
decisions and especially it is much more important in case banking business.
The present study is an endeavor to highlight the accounting and reporting practices of
Islamic banks in Bangladesh and to evaluate the quality of the reports provided by the sample
banks. The study will also justify the compliance of different rules and regulations by the
Your valuable comment in this regard is necessary for research purpose only and would
retain confidential. Your few minutes time for the purpose will help to reach this work to a
success.
Thanks for your time and efforts.
(Md. Hafij Ullah)

Assistant Professor
Department of Business Administration
International Islamic University Chittagong
Contact Number # 01818-177051.
&
M. Phil. Fellow
Under the Supervision of Professor K. M. Golam Mohiuddin
223
Questionnaire
on
PART-1: Personal Information:
1) Name of the Respondent: ……………………………………………………………..
2) Position of the Respondent: …………………………………………………………….
3) Name of Department/ Section: ……………………………………………………………
4) Name of Organization: …………………………………………………………………….
5) Duration of Service: Year: …………….……….. Month: ………………………………....
6) Educational Qualifications: …………………………………………………………………..
7) Professional Educations: ……………………………………………………………………….
8) How long have you been serving in your present position: Year: ……….…Month: …..……….
9) Which Accounting training/experience do you have? (Please put tick)
None Worked / Working as a bookkeeper Attended appropriate course(s) in Accounting
Hold Accounting Qualifications
B.Com/B.B.S M.Com/M.B.S B.B.A M.B.A (Major in Accounting)
C.M.A C.A M. Phil Ph. D
Served/Serving as an Account Executive Served/Serving as head of Accounts
Serving as Accounting teaching position
Others (Specify Please): ……………………….……………………….
10) Age of the respondent:
Group Years Group Years
Below 25 40 – 45
25 – 30 45 – 50
30 – 35 50 – 55
35 – 40 Above 55
PART-II Specific Information to the study:
11) Do you use financial reports of Islamic Banks as a basis of decision making?
Yes No
12) For what purpose do you use financial reports of Islamic Banks?
For reading and academic interest
To decide buying, holding or selling shares personally
To decide buying, holding or selling shares for organization
To grant investment (Loan)
To negotiate labor/ trade
To grant trade credit (investment)
To make decisions on behalf of clients or employer
To exercise discretion as a government official
To advise clients
Other (Specify Please): ………………………………………………………………
13) Which part of the Annual Report of Islamic Banks do you use most?
Balance Sheet Notes to the Accounts
Income Statement Ratios and Future Projections
Directors' Report Chairman's Statement
14) Do you think that the information disclosed by traditional banks is more reliable than those of Islamic
banks? Yes No
15) IAS/ BAS, IFRS/ BFRS, Companies Act, Banking Companies Act, SEC Rules and Regulations are
followed in preparing financial reports of Islamic Banks.
Strongly Agree Agree Neutral Disagree Strongly Disagree
16) AAOIFI Financial Accounting and AAOIFI Auditing Standards are followed by Islamic Banks.
17) The information disclosed in the financial statements of Islamic Banks is adequate in meeting the
requirement of your financial information.
224
18) The information disclosed in the financial statements of Islamic Banks is effective in meeting the
requirement of your financial information.
19) The information disclosed in the financial statements of Islamic Banks is useful in decision making.
20) The information disclosed in the financial statements of Islamic Banks is understandable.
21) The information disclosed in the financial statements of Islamic Banks is relevant (that is capable of
making a difference in a decision).
22) The information disclosed in the financial statements of Islamic Banks has predictive value (that can
help in making predictions).
23) The information disclosed in the financial statements of Islamic Banks has feedback value (that can
help confirming prior expectations).
24) The information disclosed in the financial statements of Islamic Banks is timely.
25) The information disclosed in the financial statements of Islamic Banks is reliable (dependable).
26) The information disclosed in the financial statements of Islamic Banks is verifiable.
27) The information disclosed in the financial statements of Islamic Banks is faithful (agreement of
information with actual position).
28) The information disclosed in the financial statements of Islamic Banks is neutral (free from bias).
29) The information disclosed in the financial statements of Islamic Banks is comparable.
30) The information disclosed in the financial statements of Islamic Banks is consistent.
31) Accounting Information System (AIS) of the Islamic Banks in Bangladesh is effective.
32) All rules and regulations regarding Appointment of Auditors are followed by Islamic Banks.
33) Quality of Audit of the books of accounts of the Islamic Banks is satisfactory.
34) Do you have any information that any of the Islamic Banks were given punishment by any regulatory
bodies for non-compliance of any rules of financial reporting? Yes No
35) If yes, Please specify:……………………………………………………………………………………..
36) Please identify the Problems of Accounting and Reporting system of the Islamic Banks in (if any)-
(a)
(b)
(c)
37) Please give your suggestions for improving the compliance of financial reporting of Islamic Banks in
Bangladesh.
(a)
(b)
(c)
Thank you very much again for your kind co-operation.
225
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Accounting and Reporting Practices of Islamic Banks in Bangladesh

Thesis · April 2013

Md. Hafij Ullah

Sustainable Shipbreaking View project

The user has requested enhancement of the downloaded file.

Md. Hafij Ullah

Department of Accounting and Information Systems

Md. Hafij Ullah

Professor K. M. Golam Muhiuddin

I am highly indebted to K. M. Golam Mohiuddin, Professor, Department of Accounting

I am also thankful to the authority of International Islamic University Chittagong,

I also take the opportunity to express my thanks to My Honorable teachers Professor

I am grateful to HEQEP, unit 141, working under the Sub-Manager of Professor K. M.

(Md. Hafij Ullah)

Chapter One: Introduction

Chapter Two: Research Design and Methodology

Chapter Three: Literature Review

Chapter Four: The Context of the Study

Chapter Five: Conceptual and Legal Framework of Accounting and

Chapter Nine: Findings Summary, Recommendations and Conclusion

Accounting is the process of identifying, recording, classifying, interpreting and

Accounting is an important way of presenting the reality of an organization. But the

Ideologically the Islamic organizations are different from the interest-based

1.2 Rational of the study:

The Islamic organizations are different from interest-based organizations in respect of

In order to present adequate, reliable, relevant, and comparable information to users

Considering the present situations of the Islamic organizations, the researcher is

1.3 Objectives of the Study:

1.4 Scope of the Study

1.5 Limitations of the Study

1.6. An Overview of Sample Islamic Banks

1. 6.3 Al-Arafah Islami Bank Limited:

1.6.5 EXIM Bank of Bangladesh Limited

1.6.7 First Security Islami Bank Limited

2.2 Selection of Islamic Banks

Table No. 2.1: Showing Selected Sample for the study

2.3 Selection of Period

2.4 Types of Data

2.5 Collection of Secondary Data

2.6.1 Preparation of Questionnaire

2.6.2 Primary Data Collection Method

2.7 Selection of Reporting Index

2.8 Tools used for Analysis

2.9 Items included in the Disclosure Index

3.2 Literature Review regarding Financial Reporting in General

Askary and Jackling (2005), in their research on ‘Corporate Financial Disclosure

Ahmed, Bala and Chowdhury (2004) in the paper on ‘Financial Reporting in

Muttakin and Hossain (2003) in their research paper on ‘Presentation of Financial

Purohit (1991) in the study on ‘Accounting Practices in the Local Government of

3.3 Literature Review regarding Conventional Banks and Financial Institutions

Uwalomwa (2011), in his study on ‘An Empirical Investigation of the Association

Ahmed (2009) in his study on ‘Compliance of Financial Disclosure in Corporate Annual

Sejjaaka (2007), in the study on ‘Corporate Mandatory Disclosure by Financial

Spiegel and Yamori (2004), in their study on ‘Determinants of Voluntary Bank

Sobhani, Zainuddin and Amran (2011), ‘Religion as an Emerging Institutional Factor

Awan (2010), in his paper on ‘Comparative Analysis of Accounting Disclosure in the

Hassan and Harahap (2010), in their study on ‘Exploring Corporate Social

Sarker (2000), in his study on ‘Regulation of Islamic Banking in Bangladesh: Role of

4.2 An Overview on Bangladesh

Resources and Economic Position: The economy of Bangladesh is a rapidly developing

4.3 Banking History in Bangladesh

British Period (1757-1947)