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Bangladesh: Public Sector Accounting

Bangladesh: Public Sector Accounting and Auditing
Bangladesh: Public Sector Accounting and Auditing

Report Summary:

(November 19, 2007) The application of international standards will strengthen decision-making, management and accountability, all necessary to improve the effectiveness of public financial management and government spending in Bangladesh.


- The International Public Sector Accounting Standards needs to be adopted
- The IFAC-issued International Standards on Auditing would benefit Bangladesh
- Public Financial Management can be improved with an ambitious and comprehensive reform program.

Executive Summary

This Report supports the improved effectiveness of public financial management and government spending in Bangladesh; it situates local practice internationally, seeks to assess and reduce any observed variance, and supports the ongoing measurement of progress. The application of international standards will strengthen decision-making, management and accountability, and ultimately development reforms. Report recommendations include the adoption of International Public Sector Accounting Standards, with a gradual transition from cash basis to accrual basis standards; attention to summary tables of outstanding accounting and auditing issues; the adoption of new International Standards on Auditing in addition to existing international standards; the elaboration of a comprehensive Public Financial Management reform program; the improvement of accounting and auditing skills through better recruitment and training practices; and the preparation of an indicators-based public financial management survey to monitor progress.

Chapter 1: Introduction

This assessment addresses the efficiency of public financial management and government spending in Bangladesh; it seeks to set local accounting and audit practices in international perspective, assess and reduce prevailing variances, and develop a basis for continuous assessment. As part of a Review of Public Sector Accounting and Auditing Practices, diagnostic questionnaires incorporating international public sector accounting and auditing principles (cf. Annexes A and B) were used to collect data from the government budget and state-owned enterprise sectors; a Bank team and national authorities then reviewed the findings further. The present analysis was also conducted concurrently with a Financial Management Reform Program funded by donor agencies, and intended to assist Bangladesh in adopting international accounting and auditing standards. Over time, the adoption of both accrual-basis reporting standards and International Standards on Auditing in the public sector would be desirable.

Chapter 2: Public Sector Accounting

Chapter 2 reports on two broad areas of public sector accounting.

-The institutional framework: existing laws should prescribe the adoption of international accounting standards; an integrated financial management system is also needed. All government departments should adopt cash basis accounting standards, and transition to an accrual basis system in due course. The skill level of government accountants must be raised through improved recruitment, in-house training, and professional education. A code of ethics is needed. Chief Financial Officers in public sector bodies will help to oversee internal controls and reporting.

-Accounting standards as practiced: accounting standards for the public sector must be formalized, and steps for adopting cash basis international standards are outlined. Regarding financial regulation in public enterprises, corporate governance must be improved through more effective audit committees; the proposed Financial Reporting Council could also help to ensure that public enterprises issue true and fair accounts.

Chapter 3: Public Sector Auditing

Chapter 3 also reports on institutional frameworks and current standards, with respect to public sector auditing.

-A new National Audit Act is needed; it should adopt international standards, include an adequate Offences Clause, and provide greater independence and authority to the Supreme Audit Institution and Comptroller Auditor General respectively. Accounting qualifications should be expected of all public sector financial auditors, and professional development is needed in technical and operational areas. The working paper system needs strengthening.

-Current auditing standards: methodologies must be improved through adoption of a modern audit manual. Audits of state-owned enterprises currently have limited impact due to delayed issuance, outstanding audit objections, late preparation of independent accounts, and non-response; senior management should be consulted on audit findings. International standards for financial reports and statements should be adopted, and the processes for reporting on fraud and compliance must be improved.

Chapter 4: Action Plans

Chapter 4 lists outstanding accounting and auditing standards issues, their current status, and the corrective action required. Accounting issues include the adoption into law of international standards, the revision of education and training offerings, and the establishment of a public sector standards committee. Computerized reporting formats must be restructured, and statements of accounting policy are also needed; a consolidated public sector financial statement will be produced starting in 2007-2008. Auditing issues to be addressed include the drafting of a new audit law; the implementation of auditing standards, including for independence and powers; attention to recruitment criteria and professional training needs; improved technology for audit management, processes, and reporting; revision of the working paper structure; risk- and systems-based methods for testing controls and compliance; the preparation of audit opinions on financial statements; testing for fraud and error in audits; and the implementation of audit recommendations.

Annex A: Methodology of the Assessment

Annex A explains that the assessment uses a set of questionnaires that compare country standards and practices in accounting and auditing with those recommended by the International Federation of Accountants (IFAC) and the International Organization of Supreme Audit Institutions (INTOSAI).

Annex B: Accounting and Auditing Standards

Annex B provides lists of the accounting and auditing standards set by the IFAC and summarizes the Code of Ethics and the Auditing Standards published by the INTOSAI.

Annex C: National Accounting Legislation

Annex C provides extracts from Part VIII of the Constitution of Bangladesh relating to the Comptroller and Auditor General and extracts from CAG (Additional Functions) Act, 1974, and Amendment Act, 1975.

Annex D: Benefits of Accrual Basis of Accounting

Annex D provides an extract from an IFAC publication to summarize some of the important benefits of accrual accounting.

Annex E: Selection and Training for Accountants and Auditors

Annex E provides an overview of the recruitment and training of officials in the accounting and auditing cadre working in ministries and subordinate departments.

Supplemental Table of Standards and Gaps

The table explains the detail of each of the substantial number of international standards that have been assessed in the Report, sets out the present position in Bangladesh and proposes the steps that may be taken to move towards the international standard.

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