Shivaji University, Kolhapur M.

Phil Synopsis

A STUDY ON THE PROBLEMS OF ADOPTION AND APPLICATIONS

OF INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)
IN BANGLADESH.

A SYNOPSIS SUBMITTED TO DEPARTMENT OF COMMERCE AND

MANAGEMENT, SHIVAJI UNIVERSITY, KOLHAPUR.
FOR THE REGISTRATION OF
MASTER OF PHILOSOPHY
IN
COMMERCE AND MANAGEMENT

UNDER FACULTY OF COMMERCE

BY
Litton Prosad Mowalie
M.A, M.B.A.

UNDER THE GUIDENCE OF

Dr. A.M.Gurav
B.Com .MBA, MPHIL, NET, PHD

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1. Introduction

The internationalization of economic dealings and globalization of business and

financial markets, the preparation of financial information according to a local
accounting system may no longer be the necessity of users whose decisions are
more and more international in range. There are a growing number of studies have
wanted to subject the relevance of International Accounting Standards (IASs) to
developing economies (Larson & Kenny 1998, Watty& Carlson, 1998; Hove, 1990;
Carlson, 1997; Larson, 1993) By adopting IASs, a country can be benefited by
different ways. According to Wolk, Francis, and Tearney (1989), international
accounting harmonization is beneficial for developing countries because it provides
them with better-prepared standards as well as the best quality accounting
framework and principles. Peavy& Webster (1990) argue that it contributes to
strengthening integration and competitiveness in the financial market of a developing
country.

It also facilitates financial operations on an international standard that contributes a

better globalization of capital markets. Whereas there are more arguments that IFRS
are irrelevant to developing countries, although they are adopting it because IFRS is
a result with network effects (Odia &Ogeido, 2013).

Bangladesh adopted IAS/ IFRS from 1999 with granting grants from the World Bank.
ICAB (The Institute of Chartered Accountant of Bangladesh) is the main authority to
adopt and issue the standards in Bangladesh. This made ICAB unparalleled for
adopting IFRS without any combination of the other party. The ICAB declared that
The Institute of Chartered Accountant of Bangladesh (ICAB) is the sole authority in
Bangladesh for adoption of International Accounting Problems of Adoption and
Applications of IFRS in Bangladesh.

Only the involvedness of ICAB is not the solution for adopting and implementing
IFRS in Bangladesh. Most of the IASs are adopted directly without modification (see
Mir & Rahaman, 2004). But Larson (1993) revealed in his studies that the
International Accounting Standards, when they are adapted to a countrys local
conditions, that would contribute to better economic growth. But in reality many

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developing countries adopt IASs in full or part to be accepted in the international

community and to prevent the problems that arise because there is a limited
resource in terms of human, technical, logistics or otherwise to prepare national
standards (O. Assenso-Okofo et al., 2011; Ashraf & Ghani, 2005; Ball et al., 2003)
This study hopes to clear the doubts as to where the problems rests in regards to
applications of IFRS in Bangladesh.

2. Problem of the Study: -

In Bangladesh, the IASs adoption process was initiated in August 1999 following a
World Bank grant to the Bangladeshi Government for the development of Accounting
and Auditing Standards in Bangladesh. The grant was targeted at enhancing the
institutional capacity of the ICAB for the adoption of IASs in the country.

The ICAB has followed a regular approach to adoption of the new standards, after
completing a process of stringent technical review and considering their applicability
to Bangladesh.

In countries (like USA, the UK, India, China, Sri Lanka etc.) of the world, different
concerned groups like professional accountants, academicians, employed
accountants, representatives from chambers of commerce and industry,
representatives from different institution or regulatory bodies are involved in the
development and/or acceptance process of accounting standards. But ICAB
neglected to involve different interest-groups from various sectors to the committee
which could bring significant improvement to standards adoption/development
process. Unfortunately, their unwillingness in this area created a great gap in
theoretical application of IFRS and the practical application in real world of business
and institutions. So there is a great problem in the theoretical application of IFRS
and the real application of it.

Another problem is after standards are reviewed and adopted, the ICAB labels them
Bangladesh Accounting Standards (BASs) notwithstanding that most of these
standards are carbon copies with the same numbers as the original IASs. (Mir et al,
2005, p. 826).

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Another problem is that there is no statutory body, including ICAB to issue

implementing guidelines on either Bangladesh Financial Reporting Standards
(BFRS)/BAS.

In addition, the concerned users lack of proper knowledge of financial statement is

also responsible for non- compliance with IFRS. They dont understand the
importance of proper knowledge. A catastrophic share market crash in 2010 and
several high-profile financial scandals in 2012 exposed the reported weaknesses.

In this research study, the researcher aims to find more in depth, the real problems
of the IFRS application in Bangladesh and then make valuable recommendations
that would resolve problems and that would ultimately help all the stakeholders of
both business concerns and non-profit concerns for actual application of IFRS.

3. Significance of the Study

It is advocated that adoption of IFRs will lead to greater transparency and

understandability, lower cost of capital to companies and higher share prices(due to
greater confidence of investors and transparent information), reduced national
standard-setting costs, ease of regulation of securities markets, easier comparability
of financial data across borders and accessory investment opportunities, increased
credibility of domestic markets to foreign capital providers and potentials foreign
merger partners, and to potential lenders of financial statements from companies in
less-developed countries. It will also facilitate easier international mobility of
professional staffs across national boundaries. For the multinational companies, it
will help them to fulfill the disclosure requirement for stock exchanges around the
world (Armstrong, Barth, Jagolizer&Riedl, 2007, Covrig, Defond& Hung 2007, Daske
Et al 2008). Other benefits include: the lower susceptibility to political pressures than
national standards, continuation of local implementation guidance for local
circumstances and the tendency for accounting standards to be raised to the highest
possible quality level throughout the world. (Choi, et al,1999; Alfredson et al,2004).

Bangladesh being a developing country needs a great amount of support from

international investors and stakeholders to improve its economic condition. But as

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long as the transparency and understanding of financial statements and its dealings
lack, the solution would not come. Therefore, it is imperative on the part of the
government, regulatory bodies and the professional bodies of Bangladesh to work
hand in hand in order to set up and execute an accounting system like IFRS that will
facilitate better financial reporting within the country as well as for international level.

The adoption of IFRS and its application in all areas of financial dealings and
reporting will greatly improve the present gridlock that Bangladesh has.

This study aims to find a measure that will solve the present problems of IFRS
adoption and application thus bring about a change in the financial accountability
and its reporting that will be accepted all over the world. This will ultimately benefit
the government, international investors, domestic companies, shareholders and
stakeholders of all kinds.

Furthermore, to the best of my knowledge and findings, previous studies though

have brought out some problems of IFRS adoption and application in Bangladesh;
yet more work needs to be done in this regard. This study desires to take a great
effort to find out the existing problems of IFRS application and adoption in depth and
then find the solution which will be given like the recommendations, and that will
ultimately pave the way for better IFRS adoption and application in Bangladesh.

4. Objectives of the Study

IFRS is applied rapidly in around all over the world which leads a common
framework. The adoption and implementation of IFRS are not developed in the same
way in every country.

The general objective of the study is to Identify the legal and institutional framework
of Bangladesh which are not ideal for the implementation of IFRS. This study will
also take a step forward to find out how ICAB and other professional bodies create
conflict to apply IFRS in Bangladesh.

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The Specific Objectives are :

1. To study the up to date IFRS application trends in Bangladesh .

2. To rectify the problems of IFRS adoption .

3. To look at the root cause of adoption and application difficulty of IFRS in

Bangladesh .

4. To figure out the issues between regulatory bodies and ICAB in application of

IFRS .

5. To have a comparative study on local accounting rules and IFRS

6. To investigate the core IFRS rules that truly needed for Bangladesh scenario

7. To propose a recommendation for the solution of the existing problem of IFRS

adoption & application in Bangladesh.

5. Hypothesis / Thesis Statements

H1- The problems of IFRS application in Bangladesh is crucial and research must
bring its solution at present time. IFRS serves as the tool for better and improved
financial reporting which are accepted globally. Transparency in financial reporting is
imperative for Bangladesh to grab the future opportunities of the global market,
therefore problems of IFRS application needs to be rectified and solved.

H2- The IFRS application and adoption in Bangladesh requires whole-hearted co-
operation from ICAB, regulatory bodies, government, accounting professionals and
head of institutions and then only success would come.

6. Scope of the Study

The study is limited to the territory of Bangladesh only and specifically two major
divisions of the country namely Dhaka and Rajshahi. The study would focus on the
adoption and application problems of IFRS in various organizations of these two
divisions and would also give an overall overview of Bangladesh in general.

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7. Limitations of the Study

Limitations are influences that the researcher cannot control. They are the
shortcomings, conditions or influences that cannot be controlled by the researcher
that place restrictions on methodology and conclusions.

Although the best effort would be given to make the study flawless, yet there are
some issues, those should be considered.
Those limitationsare:
The study would be limited within the territory of Bangladesh and specifically
within two divisions of Bangladesh namely Dhaka and Rajshahi. Therefore
specialities of other countries and differences of other divisions of Bangladesh
need to be considered.

Relevant data and document collection could be difficult due to the

organizations confidentiality and governments security codes and
unwillingness of various professional bodies to share the information.

A great lot of systematic data may not be available as study on this topic
requires rigorous efforts and professional acumen. In addition very
limitedarticles are published on this major issues of IFRS in Bangladesh.

There would always be scope for improved and better study in this area as if
all the seven divisions of the country could be studied, the results could be
different.

The sample of the study would constitute 10 professional accountants or

Chartered accountant, 5 Major professional bodies dealing with the IFRS, 5
government or regulatory bodies and 50 -100 students, college or university
professors both of trading and non-trading organization. Therefore,the sample
size is small, a better analysis can be carried out with the help of larger
sample size.

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8. Research Methodology

Research methodology is the process used to collect information and data for the
purpose of making research decisions. The methodology may include publication
research, interviews, surveys and other research techniques, and could include both
present and historical information.

This study determines to use a variety of existing data. Journals, articles, research
paper and archival data of various kinds will be used for the study.

As research approach case study is often taken to make an empirical inquiry that
investigates a phenomenon within its real life context. Here few case studies of
major companies, financial institutions and non-government entities will be done in
order to compare and consider what the actual situation of IFRS adoption problem is
and how they have tried to solve it.

The information that is going to be used in this research is going to both primary
(collected from field) sources and secondary sources.

Primary Sources of Information/Data:

The Primary information will be taken by interviewing the accounting professionals,

academicians, government officials both from the business and non-business
enterprises. A questionnaire will be prepared to serve this purpose.

In addition, qualified accountants (Chartered Accountants and Cost and

Management Accountants) will be personally consulted with in order to have their
thoughts on the problems and solutions in this regards.

Secondary Sources of Data:

The secondary sources information of this study will be from the following:

Mir, M.Z., &Rahman, A.S. (2004). The adoption of international accounting

standards in Bangladesh: An exploration of rationale and process. Journal
of Accounting, Auditing & Accountability. 18(6), 816-841.

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Bangladesh Auditors Manual, Cost & Management Accountants Manual

The Institute of Chartered Accountants of Bangladesh: Current Status of

Bangladesh Accounting Standards(BASs ), Sept 2007

Shil, N. C., Das, B., & Pramanik, A. K. (April 2009). Harmonization of

Accounting Standards through Internationalization. International Business
Research, Vol.2, No. 2.

Ali, A., & Hwang, L. (2000). Country-specific factors related to financial

reporting and the value relevance of accounting data. Journal of
Accounting Research, 38(1), 1-21.

Points, R., & Cunningham, R. (1998). The application of international

accounting standards in transitional societies and developing countries.
Advances in International Accounting, Supplement, 1, pp. 3-16.

Financial Accounting Professional Stage Application Level by ICAB

etc.

Other relevant journals, articles, books, online publications and

magazines.

Google.com, Wikipedia, Answers.com, Thought.com etc

9. Sample Design: -
A sample design is the framework, or road map, that serves as the basis for the
selection of a survey sample and affects many other important aspects of a survey or
research as well.

Simple random sampling is a basic type of sampling, since it can be a component of

other more complex sampling methods. The principle of simple random sampling is
that every object has the same probability of being chosen. Therefore, a simple
random sampling method will be used for this study.

As first step of study, the researcher will contact Ten chartered accountant
practicing in city of Dhaka and Rajshahi and would consult with them to collect
information and their views.
Secondly, representatives of five professional bodies of Bangladesh like ICAB and
ICMAB, BSHRM,IIPM and others alike would consulted to know what are the major
issues of IFRS application in Bagladesh.

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Thirdly, Five Government officers dealing with Bangladesh Financial Reporting

Standards at local level would be consulted and their thoughts would be taken into
consideration.

Finally, a questionnaire would be prepared to get the feedback from 50 to 100

college students, accountants, teachers and professors and a report on the same will
be prepared after thorough analysis.

10.Review of Literature: -

In any research work, review of literature is not only important but imperative as it
sets the background stage for further research work. Organization of research
papers in appropriate lines and methods requires helps and which can be obtained
from the research work undertaken earlier. Therefore, keeping that mandatory
aspect in mind, a thorough yet humble effort has been given.

The literature review of this work has taken consideration of the following :

A. Journal of Accounting, Auditing &Accountability. 18(6), 816-841.:The

adoption of international accounting standards in Bangladesh: An
exploration of rationale and process:

This particular study presents the major areas where adoption of IFRS has
been difficult in Bangladesh. It also points out why and how ICAB played a
role of authority ignoring consultation with other bodies which could resolve
the issues. It studies the process of IFRS adoption in Bangladesh and how
further studies could take this issues a step forward and thus brings a
satisfactory solution to the ongoing problems. This research work is an
initiation of further studies left undone.

B. Advances in International Accounting, Supplement, 1, pp. 3-16. - The

application of international accounting standards in transitional
societies and developing countries:

Application of IFRS in developing countries has its own phenomenon and

peculiarities.

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The study focuses on the barriers in adoption process and usefulness of

certain standards in developing economy such as Bangladesh.
It also studies on how certain standard don't necessarily apply in developing
economies as they are mainly developed for developed countries. This is a
mind opening research material and this would enhance my research work for
sure. And my research work would find out what are those IFRS that are not
really applicable in Bangladesh and the problems of it.

C. Financial Accounting Professional Stage Application Level by ICAB:

This particular research supporting books deals with major IFRS that are in
application in Bangladesh. This special book prepared by the professionals of
ICAB brings out major aspects of IFRS/IAS and how those standards could be
used. This research would take a thorough study on this special researched
material.

D. European Journal of Business and Management - Vol.6, No.36, 2014:

Problems of Implementing of International Financial Reporting
Standards in Bangladesh :

The research work taken earlier in this issue has been up to the year of 2014
and earlier. This particular research work deals with various regulatory issues,
confusion among ICAB professionals, non-availability of guidelines for IFRS
application which has been major cause for IFRS application problems in
Bangladesh. An updated study on this is so needed today because so many
changes has taken place over the past 3-4 years thus my research work will
be an updated work giving the due to value to the work done earlier also.

The government of Bangladesh formulated Financial Reporting Act of 2015 with

necessary amended recently again, the new act influences the application of IFRS in
Bangladesh also.

Therefore, there are issues of IFRS application that needs present attention, thus
this research work that is intended will take a step forward to study present dilemma
of IFRS application in Bangladesh.

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11. Chapter Scheme

a) First chapter - Executive Summary, Introduction & Research Methodology

b) Second chapter 1. Profile of Bangladesh

2. IFRS application scenario of Bangladesh
3. Study on IFRS application Problems in Organizations of
Dhaka and Rajshahi

c) Third chapter - Analysis & Interpretation of data

d) Fourth chapter - Conclusion & Recommendation

12. List of References: -

i. Journal of Accounting, Auditing & Accountability. 18(6), 816-841.

ii. Advances in International Accounting, Supplement, 1, pp. 3-16

iii. Financial Accounting Professional Stage Application Level by ICAB

iv. European Journal of Business and Management - Vol.6, No.36, 2014:

v. Hoogendoorn, M. (2006). International Accounting Regulations and IFRS

implementation in Europe and Beyond- Experiences with first time
adoption in Europe. Accounting in Europe, Vol. 3. Pp. 23-26.

vi. Ali, A., & Hwang, L. (2000). Country-specific factors related to financial
reporting and the value relevance of accounting data. Journal of
Accounting Research, 38(1), 1-21.

vii. Wallace, R., & Briston, R. (1993). Improving the accounting

infrastructure in developing countries. Research in Third World
Accounting, Vol. 2, pp. 201-204.

viii. Books and Articles of Institute of Chartered Accountants of Bangladesh

(2014-2017)

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