Introduction of IFRS

International Financial Reporting Standards (IFRS) are designed as a common global

language for business affairs so that company accounts are understandable and comparable
across international boundaries. They are a consequence of growing international
shareholding and trade and are particularly important for companies that have dealings in
several countries. They are progressively replacing the many different national accounting
standards. The rules to be followed by accountants to maintain books of accounts which is
comparable, understandable, reliable and relevant as per the users internal or external.

International Financial Reporting Standards began as an attempt to harmonies accounting

across the European Union but the value of harmonization quickly made the concept
attractive around the world. They are sometimes still called by the original name of
International Accounting Standards (IAS). IAS were issued between 1973 and 2001 by the
Board of the International Accounting Standards Committee (IASC). On 1 April 2001, the
new International Accounting Standards Board took over from the IASC the responsibility for
setting International Accounting Standards. During its first meeting the new Board adopted
existing IAS and Standing Interpretations Committee standards (SICs). The IASB has
continued to develop standards calling the new standards International Financial Reporting
Standards (IFRS).

Objective:
General Objective:
The broad objective of this research is to identify & analyze the IFRS practice of Bangladesh
Specific objective:

To identify the present condition of economic strategic in Bangladesh

To identify the financing report in Bangladesh.

To understand the financial statement about overall performance of the organization.

METHODOLOGY
The study has descriptive research design to fulfill the research purpose. The population of
this study comprises of all the listed manufacturing companies in Bangladesh. At present total
number of listed manufacturing companies in Bangladesh are ninety three. For this study
secondary data have been used for effective research findings. The data has been collected
from annual reports of selected manufacturing companies. The annual reports were collected
from the library of the Dhaka Stock Exchange (DSE) and websites of the companies. In
addition to the above, the data has been collected through study several relevant standards,
articles, national and international study materials and other printed materials.

Limitation of the study

The major limitation factor for this report was primarily the reluctance and strict adherence to
confidentiality maintenance attitude shown by the officials of those organizations. Most of
the calculations had to be made taking some bank organization of the relevant literature and
study materials on the banking sector were not updated, and no comprehensive in-depth study
on the business industries.

Due to some restricted to entry office we cannot collect all information properly.

Others factors is some of information we cannot collect, reason of official formalities.

2. Conceptual Issue
As financial globalization proceeds, international financial reporting and auditing standards
are increasingly becoming important instruments of integration. This has been observed in
Cannes summit of the G20 leaders in November 2011. The G20 leaders reinforced the
influence of International Financial Reporting Standards (IFRS) and in that they called for the

a implementation of global accounting standards by 2011. By the end of 2008, there were
over 100 countries that had adopted International Financial Reporting Standards. Another
parallel summit was the Business for the Environment Global Summit 2011 which was
held in Indonesia on 27-29 April 2011. The Global summit offers collaborative solutions to
address the most urgent environmental and climate issues facing the world today. This paper
makes a critical appraisal of the contemporary environmental accounting literature, and
examines whether Bangladesh Financial Reporting Standards (BFRS) can contribute towards
the monitoring and protection of the environment of the country.

A quick glance through the conceptual framework and a number of standalone standards
provide useful grounds for monitoring environmental assets, liabilities and expenditures.
Furthermore, since accounting is characterized by recognition, measurement and disclosure,
mandated accounting for the environment brings accountability to the boardroom. Added to
this is the fact that BFRS has legal backing throughout the country, and hence it has a unique
advantage of bringing environmental accountability into both financial markets and
regulatory frameworks.

This paper uses a conceptual schema to synthesize causes and effects of environmental
degradations, and argues that BFRS is necessary for monitoring the environmental behavior
of various firms. Bangladesh financial reporting and auditing standards will be able to
discriminate among the beauty contestants in environmental disclosures. The nonfinancial
and financial information can be reported through a mandatory separate statement of
environmental assets and liabilities. This paper proposes some of the elements of such a
statement.

A cluster of research argues that the firms environmental disclosure effort is a self serving
exercise of obtaining social legitimization. This study searches for a framework in BFRS so
that environmental risks (liabilities, litigations, reputation damages, loss of future profits) and
assets (endowments, rights and known reserves) of public and private goods can be accounted

for. The paper identifies key standards that are relevant to environmental monitoring, and
suggests ways of integrating financial and nonfinancial information into the existing financial
reporting system.

Figure 1 is drawn following the conventions of structural equation modeling. In order to

improve the readability of the figure, certain connectors (associations) between nodes and
mathematical notations were omitted or reduced to the minimum. Note that there are five
nodes in Figure 1 emission, production, depletion, projects and urbanization. Each node in
turn contains multiple factors.

For instance, the emission node has factors from X11 to X1n, and X11 can represent Co2 or
an equivalent element that contributes to emission of pollutants that affect air and water
quality. The production node in turn has multiple factors ranging from X21 to X2n. The
nodes and the rest of the factors can be identified by carefully reviewing ISO and other
industry standards and the emerging literature. i is a policy node that is caused by activities
(X11 to Xnn) that lead to emission, production, depletion, large projects and urbanization
activities. The policy node is further mediated by market and nonmarket forces. Market
forces are product, labour and financial markets (including financial intermediaries in carbon
securities) while nonmarket forces are state and non-state actors.
Another important question is it necessary to delineate the trans-boundary causes of
environmental degradation from the non-trans-boundary causes? The interesting question for
this paper is the extent to which accounting policy makers can influence the policy node, i
and make accountancy as an instrument of good local and international environmental
governance.

SWOT Analysis
As noted earlier, a number of existing standards and interpretations directly and indirectly
deal with environmental issues. In this respect, BFRS 6 (implementation January 2007) for

example directly deals with extractive industries and IFRIC 5 provides the guidance for
decommissioning, rehabilitation and restoration of environment related expenditure. IFRIC 3
(still under discussion) and BAS 38 (intangibles) deal with government allocated emission
rights, trades in these rights and the impairment of the emission allowances. Furthermore, it is
important to note that a number of other standards provide an indirect support for the
recognition, measurement and disclosure of environmental assets and liabilities.

BAS 37 (provisions for contingent liabilities and assets) can be linked to environmental
liabilities. BFRS3, BAS 27, BAS 28, BAS 31, BAS 24 and BFRS 8 respectively deal with
business combinations, investments in joint ventures and associates, related party disclosures,
and specify the reportable segments of a geographically dispersed global company. Listed
local manufacturing companies, subject to certain exemptions, are expected to comply with
BFRS. An environment perspective to financial reporting standards therefore provides a new
insight; an insight that is useful for monitoring and protecting the environment.

Paragraph 11 of BFRS 6 states the following:

In accordance with BAS 37 Provisions, continent liabilities and contingent assets, an entity
recognizes any obligations for removal and restoration that are incurred during a particular
period as a consequence of having undertaken the exploration for and evaluation of mineral
resources.

Furthermore, paragraph 3 of BAS 37 defines provisions as liabilities of uncertain timing or

amount; and contingent liability is defined as a liability that arises from past events, [italics
added] and its existence will be confirmed only by the occurrence and non-occurrence of one
or more of uncertain future events that are not wholly within the control of the entity.
Paragraph 14 of BAS 37 requires that provision should be recognized when (a) An entity has
a present obligation (legal or constructive) as a result of a past event; (b) it is probable that an
outflow of resources embodying economic benefits will be required to settle the obligations;

and (c) a reliable estimate can be made of the amount of the obligation. Paragraph 17 further
defines an obligating event as a past event that leads to present obligation.

It states that for an event to be an obligating event, it is necessary that the entity has no
realistic alternative to settling the obligation created by the event. Finally, paragraph 27 of
BAS 37 deals with the disclosure conditions for contingent liabilities. If the liability is not
expected to lead to an outflow of resources and where an entity is jointly and severally liable
for an obligation, that part of the obligation that is expected to be met by other parties is
treated as contingent liability.

The standard therefore leaves the application to the management, audit committee and
external auditors. In other words, even though the two standards do not define the time limit
or the size (amount) of the event or what construes a constructive obligating event, they
provide the technical ground for the recognition of environmental liabilities that arise from
past events (activities) that lead to, for example, the deterioration of air and water quality.

Rights (allowances) to emit pollutant continue to be treated as intangible assets to be

accounted for according to BAS 38 (Intangible Assets). When the rights are allocated by
government department for amounts less than its fair value, the difference is recognized as
deferred income (liability) in the statement of financial position. When the firm starts
polluting, it records provisions according to BAS 37. The original draft did not raise issues
about past events.

In its November 2009 meeting of IASB the technicalities of defining an obligating event
and the timing of recognition of liability at cost or market value and recording of initial
government allocation right (at cost of market) and provisions, whether it should be treated as
intangible asset and face impairment annual test are finalized. However, the lesson from this
IFRIC is that a number of standards BAS 38 (Impairments), BAS 20 (Government Grant),

BAS 37 (Provisions, contingent liabilities and contingent assets) and the standards that relate
to financial instruments (BAS 32, BFRS 7 and BAS 39) will be affected, and require
amendments.
IFRIC 5 (decommissioning, restoration, rehabilitation and similar liabilities) deals with
accounting for trust funds set aside for the environment. Paragraph 1 of IFRIC 5 defines the
purpose of the fund as to segregate assets to fund some or all of the costs of
decommissioning plants (such as a nuclear plant) or certain equipment (such as cars) or in
undertaking environmental rehabilitation (such as rectifying pollution of water or resorting
mined land), together referred to as decommissioning.

BAS 8 deals with selecting and applying accounting policy. The scope of BAS 8 covers
fundamental errors, retrospective adjustments of financial statements (as far back as
practicable, per paragraph 26), and when and how material omissions or wrong statements
should be practically treated, and corrected. The only unsettled matter is whether the
retrospective restatement of financial statements for environmental costs and liabilities is
impractical and indeterminate (paragraph 5 of BAS 8).

23 and paragraph 33 are silent about segment risks and rewards arising from engaging in
environmentally sensitive activities in each of the geographical areas that the company is
operating. When BFRS 8 is examined in conjunction with BAS 27 (consolidation) and the
above mentioned standards the implication for global companies

operating in

environmentally sensitive industries becomes serious.

BAS 32, BFRS 7 and BAS 39 respectively deal with presentation, disclosure, and recognition
and measurement of financial instruments. Hedge accounting (cash flow hedge, fair value
hedge and hedge of net investment in foreign operations paragraph 86 and 87 of BAS 39)
require that gains and losses, and effective and non effective hedges are to be reported in the
comprehensive statement of income. Given the rise of carbon related financial instruments,
and increases in pending lawsuits against companies the combined impacts of BAS 27, BAS

37, BFRS 6, IFRIC 5, BAS 8 and standards that deal with derivative instruments are to
strengthen the political costs (Watts and Zimmerman, 1986) for global companies that are
operating in environmentally sensitive industries.

Information and the Efficiency of the Capital Markets

II. Mispricing Created by the Arrival of Information
One answer to these questions is provided by looking at how market participants react to
news that is suddenly revealed to the public. Major corporate events can immediately change
expected future cash flows. For instance, a major disaster such as the Bophol chemical spill
immediately drove down the Union Carbide stock price. In fact, prices react within a matter
of minutes to such news, and the reaction is over within the day! In empirical event studies
which focus on corporate news releases, there is little evidence that you can make money by
investing on yesterdays news. This means, for instance, that when you read in the Wall Street
Journal that a company announced the discovery of a new cure for the common cold at a
news conference yesterday, arbitrageurs have already bought the shares, and driven the price
up.

Often there is major news about the discount rate used to discount the future cash flows in
valuation. For instance, when the Federal Reserve cuts the discount rate, we expect the net
present value of corporate securities to increase that is stocks should jump. When discount
rate changes are announced, stock prices react that day, and not the next day. This empirical
evidence strongly indicates that, at least in the highly liquid, open-information economy of
the U.S. capital markets, stock prices are Efficient.

IV. Benefits of an Efficient Market

So far, arbitrageurs sound like vultures waiting to swoop in for the kill. They take risks to
exploit new information at the expense of the less informed. The costs seem to be rewarding

opportunism at the expense of other investors. Are there any benefits to having a market
operate efficiently? Arguments in favor of efficient capital markets are:
(1) the market price will not stray too far from the true economic price if you allow
arbitrageurs to exploit deviations. This will avoid sudden, nasty crashes in the future.

(2) An efficient market increases liquidity, because people believe the price incorporates all
public information, and thus they are less concerned about paying way too much. If only the
market for television sets were as efficient as the market for stocks! A lot less comparison
shopping would be needed.

(3) Arbitrageurs provide liquidity to investors who need to sell or buy securities for purposes
other than betting on changes in expected returns.

Finding of the study

The findings of the study are consistent with observations of Freedman and Jaggi (2006) and
Bebbington et al (2008). In the analysis it is revealed that the phenomena under which the
social responsibility and sustainability reports are prepared, who prepares them and whether
the reports are subjected to audits remained unclear. More specifically, the annual reports
rarely contained nonfinancial quantitative data.

The financial statement section of the annual report is also not very different from the
nonfinancial information section. The 2010-11 annual reports of the 65 companies
(Appendix-1) were inspected in respect of BFRS 6 (for early adoption), IFRIC 5, BAS 37,
BAS 8, BAS 32, BFRS 7 and BAS 39. The findings are as follows

(1) All the annual reports state that the financial statements were prepared in accordance with
BFRS (BFRS 1 and BAS 1). The audit report also states that the financial statements were
audited in accordance with Bangladesh Auditing Standards.

(2) With regard to BAS 32, BFRS 7 and BAS 39, there is little or no disclosure in the
financial statements of the sixty five companies about emission rights and/or carbon
derivatives. As regards BFRS 8 and BAS 27, all the companies (for which applicable) are
preparing their consolidated financial statements and mention the regions in which they are
operating. However, it was not always clear how many segments were consolidated.

(3) None of the companies separately disclosed the amount of normal provisions or
provisions set aside for contingent liabilities in respect of the environment.

(4) They do not classify the expenditure [incurred for the improvement of the environmental
performance] capital and operating nature. They treat the whole expenditure as operating
expenditure.

(5) All the companies prepare their accounts according to the traditional accounting system
i.e., there is no determination and classification of environmental expenditures.

(6) The companies disclose only qualitative and descriptive information without any attempts
at quantification.

(7) Most of the companies only show positive environmental information and there is no
negative information.

(8) The environmental information can only be found either in the Chairmans statement or
Directors report. Most of the companies only show their environmental issues regarding
protection of the environment, pollution control, planting of trees and other matters. They do
not show any information regarding waste generation, conservation of energy, water wastage
and recycling of waste, noise nuisance and so on.

(9) Except Summit Power Limited (reported environmental & compliance cost under general
and administrative expenses) none of the companies disclose any exact quantitative facts on
expenditure incurred and targets set and achieved.

(10) The companies do not maintain any approaches [either physical or monetary approaches]
of environmental accounting.

The overall conclusion from the aforesaid financial statements can be summarized as follows.
First, from a compliance perspective, it is impossible to conclude that the companies are
indeed meeting the requirements of BFRS. Second, the companies did not produce a separate
statement on the environment.

This observation might be explained by DiMaggio and Powells (1983) institutional

isomorphism imposed by the profession, which puts constraint and pressure on a reporting
firm to imitate others and find legitimacy. Finally, from an earnings quality perspective, the
implications of the non recognition, non disclosure and inadequacy of provisions for past and
present environmental responsibilities points to one direction the inflation of earnings and the
intrinsic (fundamental) values of equities.

Recommendation
The above discussion leads to two financial reporting policy alternatives that the ICAB might
wish to consider. The first option is a mandated separate statement that focuses on the
environment. The second option is to require the disclosure of certain elements of
information within the existing reporting framework and strengthening the offsetting rule. As
the world continues to be preoccupied by issues of environmental degradation, transboundary issues get confused with non-trans-boundary issues. The production of a separate
statement on the environment would be a preferred policy to decouple trans-boundary issues
from non-trans-boundary issues in the context of segment (geographical) reporting. Table-3
contains some of the elements of the proposed separate statement for the environment.

Conclusion
This paper examined whether financial reporting standards can be used as a device for
monitoring the environmental behavior of environment sensitive companies. The paper
reviewed the literature in economics, finance, environmental accounting, and examined the
voluntary-mandatory mechanisms of corporate disclosure.

The researchers surmise that the proprietary cost (Verrecchia, 1983) and voluntary disclosure
mechanism is infeasible for monitoring public goods such as the environment. Mandated
environmental public information therefore cannot be discounted on the grounds of voluntary
disclosure and Countrys beauty contest. Second, a careful examination of the existing ICAB
standards provided useful avenues for improving the current set of financial statements, and
the production of mandated separate statement of environmental assets and liabilities.

Furthermore, using qualitative and case research methodology the paper examined the annual
reports of sixty five local companies that are listed on Dhaka stock exchanges. The
researchers find that the social and sustainability reports that were studied do not have
standard formats, and the GRI guidelines appear to be inadequate. The financial statements

though claim to comply with BFRS they did not enable firms to disclose key environmental
information. Consequently, the paper proposed two policy options of either requiring a
separate statement of environmental assets and liabilities, or requiring the disclosure of
minimum set of environmental information through the existing set of comprehensive
financial statements.

The separate statement on the environment that is prepared in accordance with BFRS has a
number of advantages, including the decoupling of reputation management efforts of
environmentally sensitive firms from their genuine information disclosure efforts. The
separate statement emerged from the analysis of the multifactor model in Figure 1, and the
analysis of existing financial reporting standards. The proposed statement is consistent with
the REA (resource, event, and agent) accounting concept, and certain information can be
aggregated for planning and monitoring at sector, macro, regional and global levels. The
information can be used by both market and nonmarket (State and pressure groups) actors.
Furthermore, since companies are already producing lengthy social and environmental
reports the incremental cost of preparing the separate statement outweighs the ramifications
of climate change and lawsuits on the part of the firms.

There are number of avenues for future research. Replication of this research on other
environmentally sensitive sectors might provide corroboration for the conclusions of this
paper. Examining the form of association between nonfinancial information and financial
information that purports to serve the environment is another avenue. Expanding the
taxonomy of environmental accounting in the context of REA, BFRS and other local
standards requires a shared database environment. This is another direction for future
research.