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VOLUME XLIII n NUMBER 03 n MAY-JUNE 2015

The Institute of Cost and Management Accountants of Bangladesh(An autonomous professional institution under the Ministry of Commerce, GOB)

Energy & Power 18.7%

Transport & Communication 23.8 %

Local Govt. & Rural Development 18.4%

Education & Technology 12.3%

Agriculture 6.5%

Health 5.4%

Public Administration 4.2%

Social Security & Welfare 3.8%

Others 6.9%

2015-16

ISSN 1817-5090 n VOLUME XLIII n NUMBER 03MAY-JUNE 2015

Editor Mr. Naba Krishna Muni FCMA [email protected]

Associate Editors Mr. R. Tareque Moudud FCMA Ms. Zinnia T Huq FCMAJournal and Publication Committee Chairman Mr. Naba Krishna Muni FCMA Vice-Chairman Mr. R. Tareque Moudud FCMA Members Mr. Arif Khan FCMA Mr. Jamal Ahmed Choudhury FCMA Mr. Md. Abdur Rahman Khan FCMA Prof. Dr. Swapan Kumar Bala FCMA Mr. Muzaffar Ahmed FCMA Mr. M. Abul Kalam Mazumdar FCMA Prof. Mamtaz Uddin Ahmed FCMA Mr. A. K. M. Delwer Hussain FCMA Mr. Mohammed Salim FCMA Mr. Md. Mamunur Rashid FCMA Mr. Ahsanul Bari FCMA Mr. Mohammad Golam Sabur FCMA Mr. Md. Rafiqul Islam FCMA Mr. C. M. Sadat Ullah FCMA Mr. Mohammad Shafiul Qasem FCMA Mr. Mohammed Salim Raza ACMA Chowdhury Sazzed Hossain Siddique ACMA Mr. A. H. M. Kamal ACMA Mr. Mohammad Shamsur Rahman ACMA Mr. Mohammad Ali Ikramul Kabir ACMA Mr. Mohammad Ruhul Quddus ACMA Kazi Simum Reza ACMA Mr. Mohammed Sakhawat Hossain ACMA Mr. Md. Touhidul Alam Khan ACMA Syed Mehedi Hasan ACMA Mr. Md. Aktaruzzaman ACMA Mr. Abdul Jalil Miah ACMA Mr. Kapil Uddin ACMA Secretary Mr. Mohammad Mizanur Rahman Additional Director (RPCA)

Publisher Lt Col Md Humayun Kabir, psc (Retd) Director, ICMAB

All supervision Mr. Mohammad Mizanur Rahman

Photography Mr. Md. Moslem Uddin

Design & Print Orchi Logistics 159, Arambag(1st floor), Motijheel, Dhaka 1000.

Editorial Office The Institute of Cost and Management Accountants of Bangladesh ICMA Bhaban, Nilkhet, Dhaka-1205. GPO Box No. 2629 Tel.: 9615460 & 9611799 [email protected] [email protected]

Contents01Editorial

02From the desk of the PRESIDENT

04Amendments to Income Tax Statutes in 2015:Extents and Effects

18National Budget 2015-2016Where It Comes and Where It Goes

20Classified Loans and Recovery Performance:A Comparative Study between SOCBs andPCBs in Bangladesh

27An Insight into Import Financing in Bangladesh

38Application of Capital Asset Pricing ModelEmpirical Evidences from Chittagong Stock Exchange

45Expectations Gap andPre-Financial Reporting Act Regime

53Leaders of the Corporate World

56IFRS/IAS Update

60Book Review

62Young Professionals' World

63ICMAB News

Bi-monthly Journal of the ICMAB

All rights reserved. No part of this publication may be reproduced, duplicated or copied by any means without the prior consent of the holder of the copyright, requests for which should be addressed to the publisher.

Need Inclusive Leadership to Maximise High Economic Growth

Editorial ISSN 1817-5090 n VOLUME XLIII NUMBER-3, MAY-JUNE 2015

Bi-monthly Journal of the ICMAB

01 THE COST AND MANAGEMENTISSN 1817-5090, VOLUME-43, NUMBER-3, MAY-JUNE 2015

Bangladesh National Parliament has approved the National Budget for the fiscal year of 2015 - 2016 of Taka 295,100 crore with a hope to break free of the 6 % growth trap and climb up to higher growth trajectory. Meanwhile, Bangladesh formally graduated to a lower middle income country status as per the World Bank report. It is hoped that the National Budget 2015-2016 will be able to contribute to achieve higher growth rate at the year end and help Bangladesh to become Middle Income Country gradually as per its Vision 2021.

Bangladesh ranked 142nd among the 187 member-states according to the latest gradation done by UNDP (2014) in HDI (human development index) arena. UNDP publishes annual report based on life expectancy, literacy, education, per capita income. UNDP placed Bangladesh among 18 countries making fastest progress in human development.

The 7th Five Year Plan of Bangladesh has set the following objectives as mentioned as (a) Technically and technologically knowledgeable man power development, (b) Reduce the infrastructural gap in case of power and energy, (c) Develop strategy to grow agro based industry and SME sector, (d) Develop policy to support export of ICT, education and health related services, (e) Bring momentum in public and private investment, and (f) Product diversification and bring momentum in export. Budget

brings new taxes. It also allows new expenses of government, which is a receipt or a benefit of someone. Budget is also a distribution, it takes resource or wealth from someone and gives to another one. Most of the Government try to label their budget as levelizer that means it reduces gap between rich and poor. This is the biggest challenges for us to minimize the gap.

There is no scope for being complacent in attaining this lower middle income country status. This poses many formidable challenges. Still now there are around 40 million people languishing under poverty line. We have to break that poverty cycle by taking inclusive development approaches by ensuring inclusive leadership at the top level. Thanks should go to all farmers, workers, NRB's, entrepreneurs, policy-makers, government officials, NGOs, development partners, other stakeholders and to all unsung heroes for their valued contribution in this regard. ICT played the role as one of the main drivers and hope to remain in future to achieve the ultimate goal of reaching exclusive club of developed nations. Despite the achievement, we must not be too much complacent and euphoric, still we have miles to go before the sleep. We must be optimistic and confident to keep the wheel of development moving forward so that target set by the government to be a full-fledged middle income country may be attained much ahead of time as declared by the honorable Prime Minister.

The biggest question before us that will it be possible to achieve the key objectives of the 7th Five Year Plan of Bangladesh, that is, 'to develop technically and technologically sound manpower'? Are we putting our money where our mouth is? Time will answer all these questions.

National Budget 2015-16 at a GlanceParticulars Actual

2013-14Budget2014-15

Revised2014-15

Budget2015-16

% ofTE

% ofTE

% incr

Revenue 140,375 182,954 163,371 68.2 208,443 70.6 27.6 Tax Revenue 116,032 155,292 140,676 58.7 182,244 61.8 29.5 NBR Tax Revenue 111,423 149,720 135,028 56.3 176,370 59.8 30.6 Non-NBR Tax Revenue 4,609 5,572 5,648 2.4 5,874 2.0 4.0 Non-Tax Revenue 24,343 27,662 22,695 9.5 26,199 8.9 15.4Total Expenditure (TE) 188,208 250,506 239,668100.0 295,100100.0 23.1 (% of GDP) (14.01) (18.70) (15.83) (17.19) 8.6 ADP 55,333 80,315 75,000 31.3 97,000 32.9 29.3 Non-ADP 132,875 170,191 164,668 68.7 198,100 67.1 20.3Deficit (excl. For. Grants) -47,833 -67,552 -76,297-31.8 -86,657- 29.4 13.6 (% of GDP) (3.6) (5.0) (5.0) (5.0)Financing 47,842 67,552 76,297 31.8 86,657 29.4 13.6 Foreign Grants 6,357 6,206 5,674 2.4 5,800 2.0 2.2 Foreign Borrowing-Net 3,349 18,069 15,909 6.6 24,334 8.2 53.0 Domestic Borrowing 38,136 43,277 54,714 22.8 56,523 19.2 3.3GDP 1,343,6741,339,5001,513,600 1,716,700Tax GDP Ratio 8.64 11.59 9.29 10.62

(Amount in crore Taka)

earliest. We just expect that the Finance Minister will balance between revenue and development expenditure and give more emphasis on developments, particularly on infrastructure and human resources developments; because developments in right direction would increase economic activities that would lead to increase the Gross Domestic Product (GDP) of the country.

The main challenge for the government is to create jobs for the youths and for that purpose the government has to look forward for rapid industrialization which in turn will promote service sector as well. For this purpose, transparency, accountability and governance issues along with a congenial atmosphere for business, investments and exports should be substantially improved. It is very encouraging that the Finance Minister has declared to create a number of economic zones to attract both local and foreign

The National budget for Tk. 295,100 crores (2.95 trillion taka) has been passed by the Parliament on June 30, 2015 for the fiscal year 2015-16. This is the 44th Budget of Bangladesh and it is the first year of the implementation of the forthcoming Seventh Five Year Plan of the country. It is also 7th budget speech of the Finance Minister, Mr. A M A Muhit. Considering all aspects, this budget will have a great impact on the economy to graduate Bangladesh as a middle- income country within shortest possible time.

Critics say that this is an ambitious budget but the Finance Minister has expressed his optimism to achieve the targets of 2015-16. ICMAB also believes that it is a realistic budget under the present trend of growth, provided the capacity building programs of the National Board of Revenue (NBR) are done properly and the desired e-governance can be implemented at the


P R E S I D E N T

investors but the situation in reality is very different. Scarcity of industrial land and gas and uncertainty of political stability are major impediments of doing business in Bangladesh.

ICMAB always looks forward to achieve economic targets and develop human resources in the country. In this regard, we do our best within our limited resources to put positive contribution to the national economy as well as human resources developments; particularly professional education and trainings. We believe that the present government under the able and dynamic leadership of the Prime Minister Sheikh Hasina will take the right steps at right time to fulfill the hopes and aspirations of the people in line with the declaration of the Finance Minister to increase the GDP in the next fiscal year more than 7%. We also expect that the Finance Minister will address the fears and concerns of taxpayers and investors about the complex system of paying taxes.

ICMAB has held few meetings with National Board of Revenue (NBR) having pre-budget discussions and training on Transfer Pricing. I have also spoken as a panelist in the Impact Session on International Tax Cooperation in the South-South and Triangular Cooperation Conference held in Dhaka in last May 2015. It is now very good to see that a number of ICMAB's recommendations have been incorporated in the national budget and the Finance Act, 2015. We are also happy to inform the members of ICMAB that the CMAs have been allowed to certify the Transfer Pricing Statements under the Finance Act, 2015.

Apart from the above, another important global economic issue has drawn the attention of the economic leaders of the countries around the world, which I would like to share with you. It is Dr. Raghuram Govind Rajan, Governor of the Reserve Bank of India who delivered a speech at London Business School recently. He has expressed his fear that the global economy may face another great depression like 1930. About a decade ago he

predicted about the last global economic crisis when he was the Chief Economist of International Monetary Fund. But no importance was given to his prediction; rather he was compared with Luddites. Luddites were a group of English workers mostly of textiles artisans who broke and burned economizing efficient machinery like power looms from 1811to 1816 with a perception that those were threat to their way of life. They sent death threat to-even attacked magistrates and food merchants. However, Dr. Raghuram's prediction became a truth in 2007 when the last global economic turndown begun. As such, this time the global economic leaders and organizations are giving due importance to his prediction and they are now seriously thinking to find out most efficient and effective ways to regulate and control the financial matters so that bad things happened earlier are not happen again. Under the said situation, it is also time for professional CMAs to know and understand the gravity of the national and global economic threats and act accordingly to overcome all uncertainties upholding their professional ethics and integrity.

The globe is now passing a complex situation. Wars, conflicts and corruption are the enemies of economic development. Under this global situation, let us learn more, know more and do more to combat corruption, indiscipline and unethical practices. Regarding rapid industrialization in our country, it is good to see that the power sector has been developed at a satisfactory level. Now we urge the government to give more emphasis on gas supply (LNG or any other form) to the industries and improve the law and order, rule of law and reduce bureaucratic hassle to make Bangladesh an attractive investment destination; because more investments would bring more money, create more jobs and reduce poverty at the bottom level.



Abstract

Major objective of the National Budget 2015-16 is to "break free of the 6 percent growth trap". With a view to achieving this target, how the amendments to income tax statutes will play a role is the main scope of this paper. It highlights the income tax aspects within the purview of this year's budget and also enumerates the extents and effects of the annual changes made in the income tax statutes relevant for assessment year 2015-16.

Keywords: National Budget, Income tax, Assessment year.

Ranjan Kumar Bhowmik FCMAhas been serving with B. C. S. (Tax) Academy as it's Director General.

Swapan Kumar Bala Ph.D, FCMAhas been serving with Dhaka Stock Exchange Ltd.as it's Managing Director.

Amendments toIncome Tax Statutes in 2015:Extents and Effects

Amendments toIncome Tax Statutes in 2015:Extents and Effects

6%


16, around 72 percent is from corporate taxpayers (Taka 46,479 crore) and 28 percent is from other taxpayers (Taka 18,492 crore). In the revised budget of 2014-15, the corporate-non-corporate income tax ratio is 68:32 (Taka 32,900 crore from corporate taxpayers and Taka 15,714 crore from other taxpayers (GOB, 2015d). Thus, corporate income tax is targeted to be increased by 33.65 percent, whereas non-corporate income tax is targeted to be increased by only 17.68 percent.

High annual growth rate in income tax in FY2015-16 might be for introduction of minimum net wealth-related surcharge, more expanded scope of withholding taxes, penalizing tax rate for cigarette manufacturers (both corporate and non-corporate), enhanced penal provisions (both penalty and prosecution), introduction of 'further processing' or scrutiny in case of universal self-assessment, and widened scope of 'deemed income'.

3.0 Structure of the Finance Act 2015In the Parliament, just after the budget speech, the Finance Bill 2015 was placed on 4 June 2015 by the Finance Minister to effect the fiscal measures proposed in the national budget 2015-16. The Finance Bill was passed on 29 June 2015 and Presidential assent was given to it on 30 June 2015 and published in the official Gazette on the same day as the Finance Act 2015(Act No. 10 of 2015). The structures of the Finance Bill 2015 (FB 15) and the Finance Act 2015 (FA 15)are as follows:

1.0 IntroductionThe National Budget for the financial year (FY) 2015-16 was placed by the Finance Minister Mr. Abul Maal Abdul Muhith on 04 June 2015 and passed on 30 June 2015. This is the sixth consecutive digital presentation of budget speech, which was a comprehensive printed document of a total of 140 pages in English version (5 initial pages plus 96-page body plus 39-page annexures). In terms of the size of total expenditure, the budget of 2015-16 is also the ever biggest (Tk. 295,100 crore in FY2015-16 against Tk. 239,668 crore in revised budget of FY2014-15, with an increase of 23.1%). For financing this big budget, the total revenue target (excluding foreign grants) for FY2015-16 is Tk. 208,443 crore, which was Tk. 163,371 crore in the revised budget of FY2014-15 (i.e., 27.59% increase). After including the foreign grants, this year (FY2015-16) 72.60% of the total expenditure will be financed by the targeted revenue sources, which was only 70.53% last year. In terms of gross domestic product (GDP) also, this shows more capability of the Government successively (total revenue including foreign grants is 12,48% in FY 2015-16, which was 11.17% in the revised budget of FY 2014-15 (GOB, 2015c; 2015d). This paper mainly highlights the income tax aspects of the National Budget 2015-16 and also gives an analytical overview of the extents and effects of the amendments in the income tax laws by the Finance Act 2015 and other relevant SROs (statutory rules and orders).

2.0 Income Tax Aspects within the National Budget 2015-16As shown in Table 1, total income tax revenue target for FY 2015-16 is at Taka 64,971 crore with 33.65 percent increase over that of revised budget for FY 2014-15 (although there is a decline of 15.37% from the original budget of FY 2014-15 in the revised budget). This amount is 35.65 percent of the total tax target of Tk. 182,244 crore, 36.84 percent of the NBR's tax target of Tk. 176,370 crore and 31.17 percent of the total revenue (excluding foreign grants) target of Tk. 208,443 crore. In FY2015-16, income tax will finance 22.02 percent of total expenditure of Tk. 295,100 crore. The income tax-GDP ratio was 3.21 percent in FY2014-15, and it is expected to be 3.78 percent in FY2015-16 (overall tax-GDP ratio expected to be 10.62). Out of total income tax target in 2015-

Note: "% increase" means increase in Budget 2015-16 over Revised Budget 2014-15.Sources: Compiled from GOB (2015c); GOB (2015d).

Income Tax ParametersRevised BudgetBudget % Increase over 2014-15 2015-16 FY2014-15

Taxes on Income andProfit (crore taka) 48,614 64,971 33.65

Companies 32,900 46,479 41.27

Other than companies 15,714 18,492 17.68

Taxes on Income and Profit as a percent of:

Total NBR Tax Revenue 36.00 36.84 2.32

Total Tax Revenue 34.56 35.65 3.16

Total Revenue 29.76 31.17 4.75

Total Expenditure 20.28 22.02 8.54

Gross Domestic Product(GDP) 3.21 3.78 17.84

Overall Tax-GDP Ratio 9.29 10.62 14.32

Table 1: Income Tax Revenue Target in the Budget


Thus, major changes (above 78% in terms of number of sections of the FA) have been made in the Income Tax Ordinance 1984 (ITO). Following sections have enumerated an analysis of these changes.

4.0 Amendments in the Income Tax OrdinanceBelow is the description of major structural and other changes in the income tax rates and other changes made in income tax laws.

Overall structural change in the Income Tax Ordinance: On 01.07.2014 for assessment year (AY) 2014-15, there were 24 Chapters, 294 sections and 7 Schedules. Following are the changes done in the Income-tax Ordinance, 1984 by the Finance Act, 2015:

l New sections inserted: 6 sections (sections 53P, 107HH, 124AA, 129B, 165AA and 165C);l Existing section deleted: 2 sections (sections 53CC and 53O);l Existing sections substituted: 5 sections (sections 16B, 52AA, 52JJ, 54 and 107F);l Existing sections amended: 41 sections [sections 2(35), 16CCC, 19, 19BBBBB,19E, 28, 29, 30, 33, 37,

46B, 46C, 47, 49, 50, 51, 52, 52A, 52B, 52D, 52S, 52U, 53AA, 53E, 53EE, 53F, 53H, 53HH, 53K, 56, 75, 82BB, 82C, 84, 124, 127, 130, 132, 152I, 153 and 184A]; and

l Existing Schedule amended: 2 Schedules (Third Schedule and Sixth Schedule).

Thus, from 01.07.2015 for AY 2015-16, there are 24 Chapters, 298 sections and 7 Schedules.

Overall structural change in the Income Tax Rules: For AY 2014-15 (after amendment by SRO No. 216-Ain/Aykar/2015, dated 18.08.2014), there were 107 rules (Rule 1 to Rule 75A). Following are the changes done in the Income-tax Rules, 1984 by SRO No. 192-Ain/Aykar/2015, dated 30.06.2015, applicable for AY 2015-16:

l Existing rules amended: 8 rules (rules 16, 18, 33A, 33D, 33I, 37, 70 and 73);l New rule inserted: 2 rules (rules 18A and 62A);l Existing rules replaced: 3 rules (rules 17A, 24A and 75); andl Existing rules repealed: 2 rules (rules 17 and 74).

Thus, for AY 2015-16, there are 107 rules (Rule 1 to Rule 75A) in the Income Tax Rules, 1984.n Changes in Income Tax Rates:

Tax rates for AY 2015-16 have been mentioned below according to various taxpayers and for different classes of income.

n Tax Rate for Non-Corporate Taxpayers:Resident individual assessee, non-resident Bangladeshi, association of persons, firm, Hindu undivided family (HUF) and other artificial juridical persons: There are changes in the income slabs in AY 2015-16 with the highest tax rate of 30% for normal assessees beyond total income of Tk. 4,720,000 (last year it was Tk. 4,420,000).

Sources: GOB (2015a), The Finance Bill 2015; GOB (2015b), The Finance Act 2015.

Chapter

First Introduction Section 1 01 section

Second Excise and Salt Act, 1944(Act No. I of 1944)

Section 2 01 section

Third Customs Act, 1969(Act No. IV of 1969)

Sections 3-8 06 sections

Fourth Income-tax Ordinance,1984 (Ord. No. 36 of 1984)


Fifth VAT Act 1991(Act No. 22 of 1991)


Sixth Schedules -- --

Seventh Declaration -- --

Eighth Statement regardingObject and Reason -- --

Total Sections 1-76 67 sections

Coverage of the Tax Laws Finance Act 2015(passed on 29.6.2015)

Finance Bill 2015(placed on 04.6.2015)






-- --

-- --

-- --



Rate of Surcharge for Individual Assessee: For an assessee being individual whose "total net worth" as shown in the statement of assets, liabilities and expenses submitted u/s 80 of the Income Tax Ordinance, 1984, surcharge shall be payable on income tax applicable on income for which income tax is applicable at following rates. In AY 2015-16, the initial exemption threshold has increased from Tk. 2 crore to Tk. 2 crore 25 lakh and a minimum surcharge of Tk. 3,000 has been introduced if total net worth exceeds this threshold.

a Initial exemption limit for AY 2015-16: women taxpayers and taxpayers having age of 65 years or more-Taka 300,000; retarded taxpayers-Taka 375,000; and Gazetted war-wounded freedom fighters-Taka 425,000 (GOB, 2015b). Initial exemption limit for AY 2014-15: women taxpayers and taxpayers having age of 65 years or more-Taka 275,000; retarded taxpayers-Taka 350,000; and Gazetted war-wounded freedom fighters (as per the Gazetted SRO of Ministry of Liberation War Affairs, dated 04.09.2003)-Taka 400,000.

b For AYs 2014-15 and 2015-16, if an assessee is the owner of a small or cottage industry situated in Less Developed Area or Least Developed Area and engaged in producing cottage industry goods, he will obtain income tax rebate at 5% of payable income tax (if income year's production is higher by more than 15% but not more than 25%) or 10% of payable income tax (if income year's production is higher by more than 25%).

Type of IncomeTax Rates for AY

2014-15 2015-16

2014-15 2015-16

(1) Capital gain on transfer of securities or mutual fund of:

ß shareholders of stock exchange [Second Schedule up to AY 2013-14 and source tax u/s 53N from AY 2014-15 with settled tax u/s 82C]

ß a partnership firm [u/s 53O for AY 2014-15 with settled tax u/s 82C and SRO No. 196- Ain/Aykar/2015, dated 30.6.2015, from AY 2015-16]

ß a sponsor shareholder or director or placement-holder of a listed company [source tax u/s 53M and settled tax u/s 82C]

ß a sponsor shareholder or director of bank, financial institution, merchant bank, insurance company, leasing company, portfolio management company and stock dealer company [SRO 217-Ain/Aykar/2014; dated 18/8/2014 for AY 2014-15 and SRO No. 196-Ain/Aykar/2015, dated 30.6.2015 from AY 2015-16]

ß other shareholder or director of a listed company having more than 10% of share capital of a company at any time in income year [SRO 217-Ain/Aykar/2014; dated 18/8/2014, for AY 2014-15 and SRO No. 196-Ain/Aykar/2015, dated 30.6.2015 from AY 2015-16]

(2) Other capital gain (long-term)

15% or Average Tax Rate (ATR) on total income including capital gain, lower one

(3) Income from lottery, crossword puzzle, etc. u/s 19(13)

As per Second Schedule, 20% or ATR on total income including accidental income, lower one; but 20% TDS is applicable u/s 55, which is treated as settled tax

Minimum tax (Tk.) City Corporation area: Dhaka and ChittagongCity Corporation area: Other

Paurasabha of district headquarter area

Other area

(4) Other income

Total Income-Slab 2014-15b 2015-16b

Nil10%15%20%25%30%

Nil10%15%20%25%30%

3,0003,000

5,0004,000

2,000 3,000

1,000 3,000

On first Tk.On next Tk. On next Tk. On next Tk. On next Tk. On balance Tk.

220,000a

300,000400,000500,000

3,000,000Balance

250,000a

400,000500,000600,000

3,000,000Balance

15%

10%

5%

5%

5%

15%

10%

5%

5%

5%

Same

Same

Sl.Total net worth Rate of surcharge for AY

2014-15 2015-16

(a)Up to Tk. 2 crore Zero ---

Up to Tk. 2 crore 25 lakh --- Zero

(b)Above Tk. 2 crore, but not exceeding Tk. 10 crore 10% ---

Above Tk. 2 crore 25 lakh, but not exceeding Tk. 10 crore --- 10%*

(c)Above Tk. 10 crore, but not exceeding Tk. 20 crore 15% 15%

(d)Above Tk. 20 crore, but not exceeding Tk. 30 crore 20% 20%

(e)Above Tk. 30 crore 25% 25%

*Minimum surcharge, if total net worth exceeds Tk. 2 crore 25 lakh --- Tk. 3,000


l Non-company non-resident assessee (except any Bangladeshi): Rate has been increased to 30% for AY 2014-15 and this rate continues for AY 20015-16 also.

l Non-company assessee (sole-proprietorship, partnership firm or any other entity) for income from business in relation to cigarette manufacturing: From AY 2015-16, this income is subject to separate tax at the rate of 45%.

l Tax Rate for Corporate Taxpayers: For a company which is publicly traded (other than a banking or insurance company or mobile phone operator company), corporate tax rate has been reduced from 27.5% to 25% for AY 2015-16. Similarly the earlier provision to impose tax @ 35% for less than 10% dividend declaration is also withdrawn. So now single tax rate of listed industrial company is 25% with a gap of 10% from the rate for non-listed industrial companies. However, listed cigarette manufacturing companies' tax rate has been increased from 40% to 45%. Minimum tax as apercentage of 'gross receipts' u/s 16CCC has also been reduced from 0.30% to 0.10% in case of a new industry engaged in manufacturing of goods for first three years since the commencement of its commercial production.Incentive of tax rebate (@ 10% of applicable income tax) for paying cash dividend at 30% or more allowed for AY 2014-15 in case of a listed company (other than a banking or insurance company or mobile phone operator company) has been withdrawn from AY 2015-16.

From AY 2015-16, minimum tax rate shall be 0.10% of gross receipts for an industrial undertaking engaged in manufacturing of goods for the first three income years since commencement of its commercial production (new proviso to sec. 16CCC by FA 2105).

All companies

* Applicable for a banking company: Under section (u/s) 16C (inserted by the FA 2002), a bank company, if shows, in the return, profit exceeding 50% of the aggregate sum of capital and reserve, shall pay tax @ 15% of such excess profit as excess profit tax.

** Applicable for a publicly traded company (other than a banking or insurance company): Under section 16B (from AYs 2002-03 to 2014-15) and under clause (a) of section 16B (from AY 2015-16; due to amendment by the FA 2015), a listed company other than a banking or insurance company, if has not issued, declared or distributed dividend or bonus share equivalent to at least 15% of paid-up capital within six months immediately following any income year, shall pay tax @ 5% of "undistributed profit" (accumulated profit including free reserve) as additional tax.

*** Applicable for a publicly traded company (other than a banking or insurance company or mobile phone operator company): For AY 2014-15, if such company pays cash dividend at 30% or more, it will obtain income tax rebate at 10% on applicable income tax. But for AY 2015-16, this dividend related incentive has been withdrawn.

α Applicable for a mobile phone operator company: For both AYs 2014-15 and 2015-16, if a mobile phone operator company transfers at least 20% shares through Initial Public Offering (IPO), it will obtain income tax rebate at 10% on applicable income tax in the concerned year of such transfer.

*** Applicable for a company which is not publicly traded (other than a banking or insurance company or mobile phone operator company): For both AYs 2014-15 and 2015-16, if such company transfers at least 20% shares through Initial Public Offering (IPO), it will obtain income tax rebate at 10% on applicable income tax in the concerned year of such transfer.

Type of IncomeTypes ofCompany

Tax Rates for AY

2014-15 2015-16

(1) Capital gainarising out of

Anycompany

10% 10%

15% 15%

ß Transfer of securities of listed company [u/s 53O for AY 2014-15 with settled tax u/s 82Cand SRO No. 196- Ain/Aykar/2015, dated 30.6.2015 from AY 2015-16]

(2) Dividend income 20% 20%

42.5% 40%

ß Transfer of other capital assets [Second Schedule]

40% 45%

45% 45%

ß Company being a publicly traded company

ßFor other company

Bank*, insurance, financial institutions (except merchant bank)

Cigarette manu-facturing companies

Other income (except capital gain and dividend income)

ß Company being a publicly traded company

42.5% 40%ß For bank, insurance and financial institution approved by Government in 2013

42.5% 42.5%ß For other company (actually foreign banks only)


40% 40%a

45% 45%

ß Company being converted into a publicly traded one by transferring at least 10% shares [of which maximum 5% may be through Pre-Initial Public Offering Placement (IPO)] through stock exchanges

ßFor other company

ßFor other company

Mobile phone operator companiesα


0.30% 0.30%Minimum tax as a % of 'gross receipts' u/s 16CCC from AY 2011-12

35% 25%

27.5% 25%

37.5% 35%

ß For publicly traded company*** i.Dividend declared by less than 10% or failure to pay declared dividend within SEC stipulated time (60 days as per SEC's SRO No. 385-Ain/91, dated 15.12.1991; 30 days from 9.2.2010 as per SEC Notification on same date) ii.Other situation

Other company**


Other income (except capital gain and dividend income) 37.5% 37.5%Merchant bank


n Additional tax for unauthorized employment of foreign citizen [Section 16B substituted]: Keeping the existing provision (tax on undistributed profit) in clause (a), a new clause (b) has been added to section 16B to impose an additional tax.Any person employs or allows, without prior approval of the Board of Investment (BOI) or any competent authority of the Government, as the case may be, any individual not being a Bangladeshi citizen to work at his business or profession at any time during the income year, such person shall be charged additional tax at the rate of 50% of the tax payable on his income or Tk. 5 lakh, whichever is higher, in addition to tax payable under the ITO.

n New Tax Rate for Cooperative Societies registered under the Cooperative SocietiesAct 2001 (effective from AY 2015-16): Every cooperative society is now taxable from AY 2015-16 at a reduced rate of 15% [prescribed by the FA 2015] for its income other than agricultural income, income from rural credit and cottage industry, and income from the letting of godowns or warehouse in relation to commodities belonging or meant for sale to members. By deletingclauses (a) and (c) of sub-section (1) of section 47, following incomes of a cooperative society are taxable:ß income as is derived by a cooperative

society as a result of such of its dealings with its members as involve sale of goods, the lending of money or the lease of buildings and land which is for the personal use of such members, or where such member is a firm or an association of persons, for the personal use of the partners or members thereof [clause (a) of sec. 47(1)];

ß income from interest and dividends derived from its investments with any other cooperative society [clause (a) of sec. 47(1)].

l Changes in Tax Holiday provisions u/s 46B and 46C:(a) New area of Tax Holiday [Section

46B(2)]: The following type of industry will be eligible for 10-year graduated tax holiday: Following new industries are subject to tax holiday u/s 46B: (1) Automobile manufacturing industry, (2) Bi-cycle manufacturing industry, (3) Brick

made of Tunnel Kiln technology, and (4) Tyre manufacturing industry. However, if any tax holiday enjoying company employed foreign employee having no work permit, tax holiday for the relevant assessment year will be withdrawn and tax will be imposed by the DCT for that year [sub-section (11) of sec. 46B amended].

l Extension of tax exemption income facility of software and IT enabled services [Sixth Schedule, Part A, Para 33]: The tax exemptionup to 30/6/2019. This tax exemption facility has been extended up to 30/6/2024.

l Extension of tax exemption income facility of handicrafts export business [Sixth Schedule, Part A, Para 35]: It was tax exempted up to 30/6/2015. This tax exemption facility has been extended up to 30/6/2019.

l Introducing reduced tax rate for importers of 29 items: Under rule 17A(b), advance income tax (AIT) at import stage has been imposed @ 2% in place of regular 5% on 29 items including petroleum oil, raw leather, M.S. rod, mobile phone set etc. and it will be final settlement of tax liability as per section 82C(2)(g).

l Extension of reduced tax rate facility of textile and jute goods manufacturing for another 4 years [SRO Nos. 193-Ain/Aykar/2015 and 194-Ain/Aykar/2015, both dated 30.6.2015]: Facility of 15% reduced tax rate for textile and jute goods manufacturing has further been extended up to 30/6/2019.

l Reduced tax rate on poultry [new SRO]: Income from poultry will be taxed at the following reduced tax rate:

Income range Tax rateOn first Tk. 15,00,000 nilOn next Tk. 15,00,000 5%On rest amount of income 10%

l Reduced Tax Rate for Agro-Farms [SRO No. 199-Ain-Aykar/2015, dt. 30.6.2015]: Under SRO No. 208-Ain-Aykar/2013, dt. 1.7.2013, fish farming [deleted by SRO No. 232-Ain/2014, dt. 15.9.2014], pelleted poultry feed production, seed production, marketing of seeds produced locally, livestock farming, dairy farming, frog farming, horticulture, mulberry farming, apiculture, sericulture, mushroom


production farming, and floriculture, were subject to 3% rate for income earned from 01.07.2013 to 30.06.2015. Under SRO No. 199-Ain-Aykar/2015, dt. 30.6.2015, new tax rate will be as follows:

Income range Tax rateOn first Tk. 10 lakh 3%On next Tk. 20 lakh 10%On rest amount of income 15%

l Tax on Bangladesh Road Transport Authority (BRTA) withdrawn [SRO No. 158-Ain-Aykar/2014, dt. 26.6.2014, amended by SRO No. 197-Ain-Aykar/2015, dt. 30.6.2015]: Tax imposed @ 25% on BRTA last year has been withdrawn.

Tax Issues for Securities Market:In addition to maintaining previous 10% gap between tax rates for listed and non-listed industrial companies by reducing listed industrial company's tax rate from 27.5% to 25% (from 27.5% vs. 35% tax rates to 25% vs. 35% rates), reducing tax rate from 42.5% to 40% for listed bank, insurance and financial institution, increasing tax rate from 40% to 45% for listed cigarette manufacturing companies, and first year's 10% tax rebate to listed industrial company for offloading at least 20% shares through IPO, following are additional tax issues related to securities market:

(a) Withdrawal of withholding tax on capital gain on sale of shares of listed securities by companies and partnership firms (Section 53O deleted): Last year withholding tax system was introduced @ 10% on companies and partnership firms for their capital gain on transfer of securities. However, share market related SRO No. 217-Ain/Aykar/2014, dated 18.8.2014 has been deleted and a new SRO (SRO No. 196-Ain/Aykar/2015, dated 30.6.2015has been issued to continue the tax.

(b) Tax exemption to BSEC for 5 years [SRO No. 195-Ain/Aykar/2015; dated 30.6.2015]: Last year tax @ 25% was imposed on the Bangladesh Securities and Exchange Commission (BSEC) under SRO No. 158-Ain-Aykar/2014, dt. 26.6.2014. Under new SRO No. 197-Ain-Aykar/2015, dt. 30.6.2015, previous 25% tax rate has been withdrawn. However, income of BSEC will remain tax exemptedat graduated rate

for 5 years with effect from 01/7/2015 at the following rate: 1st year @ 100%; 2nd year @ 80%; 3rdyear @ 60%; 4th year @ 40% and 5th year @ 20%.

(c) Tax exempted cash dividend ceiling raised from Tk.20,000 to Tk.25,000 [Sixth Schedule, Part A, Para 11A]: Tax exempted cash dividend ceiling has been raised from Tk.20,000 to Tk.25,000.

(d) Any type of incomes (not only dividend) from mutual/unit fund to be exempted up to Tk.25,000[Sixth Schedule, Part A, Para 22A]: Earlier provision was that dividend income from mutual fund and unit fund is tax exempted up to Tk. 25,000. Now any income from mutual fund and unit fund will be similarly tax exempted. Thus, fixed-income mutual/unit fund will get this benefit also..

"Our main objective in this fiscal

year's budget will be to

break free of the 6 percent growth trap, and climb up

to higher growth

trajectory"


Withholding Tax (WHT) or Tax Deducted at Source (TDS)

The details of changes in withholding tax rate, and introduction of new area of withholding tax are summarized below:

3% on total proceeds exceeding Tk. 5 lakh(but not applicable on rice, wheat, potato, onion, garlic, peas, chickpeas, lentils, ginger, turmeric, dried chilies, pulse, maize, coarse flour, flour, salt, edible oil, sugar, black pepper, cinnamon, cardamom, clove, date, cassia leaf and all kinds of fruits)

Sl. Head of TDS Section Earlier rate of TDS/provision New rate of deduction/provision

1. Government salary

50 There was no specific provision to deduct tax at source

Tax to be deducted by the Government salaried person himself at average rate if his/her basic salary and bonus likely to exceed the minimum taxable ceiling. Respective Government accounts office will issue TDS certificate to every such employee within 31st July every year.

2. Interest on Securities

51 5% upfront 5% upfront [unchanged], but no TDS will be applicable on treasury bill/treasury bond.

3. Contractor and supplier

52(Rule 16)

TDS was applicable on indenting commission and shipping agency commission under this section.

n Provision of TDS on indenting commission and shipping agency commission is withdrawn from sec. 52 and put it into sec. 52AA.

n TDS on gas bill has been reduced to 3% which is not to be treated as final settlement of tax liabilities.

4. Professional or technical services

52A(3) There was a provision to issue certificate by the NBR not to deduct tax at source if his income does not likely to exceed the assessable limit

This provision has been withdrawn

5. Stevedoring agency or private security service agency or any person for rendering any service other than the services specified in Chapter VII of the ITO

52AA 10% 1.5%, 3%, 5%, 7.5% and 10%(18 specific service providers and one residual service other than the services specified in Chapter VII of the ITO) Service-specific TDS rates are given in Table-2 below.

6. Cigarette manufacturing

52B New Value Added Tax (VAT) department will collect income tax @ 3% on Maximum Retail Price (MRP) from cigarette manufacturer

7. Cigarette manufacturing

52JJ 3% on commission or discount or incentive bonus or another benefit provided by the airlines to GSA or GSA to travel agent for selling air ticket/ air cargo

0.30%of the total value of tickets of the airlines or any charge for carrying cargo by air(Embarkation fees, travel tax, flight safety insurance, security tax and airport tax shall not be included in such value of tickets or cargo charge)

8. Soft Drinks/Mineral water

52S 3% 4%

9. Shipping business of a resident

53AA New n Commissioner of Customs will not allow port clearance to any ship without income tax certificate issued by the DCT.

n The form of such certificate is prescribed at Rule 62A.

10. Local letter of credit (L/C) or any financing agreement called by whatever name

52U TDS will not also be applicable on computer or computer accessories, Jute, cotton and yarn.

0.8%(SRO No. 68-Ain/2014, dated 22.4.2014)

12. Export of goods other than items u/s 53BB

53BBBB 0.6%(SRO No. 224-Ain/2015, dated 02.7.2015, w.e.f. 30.6.2015)

11. (a) Export of knit wear and woven garments, terry towel, carton and accessories of garments industry

(b) Export of jute goods, frozen food, vegetables, leather goods, packed food

53BB

53BB

0.30%(SRO No. 68-Ain/2014, dated 22.4.2014)

0.8%(SRO No. 68-Ain/2014, dated 22.4.2014)

0.6%(SRO No. 224-Ain/2015, dated 02.7.2015, w.e.f. 30.6.2015)

0.6%(SRO No. 224-Ain/2015, dated 02.7.2015, w.e.f. 30.6.2015)


Sl. Head of TDS Section Earlier rate of TDS/provision New rate of deduction/provision

13. Non-resident courier

53CC 15% Provision of TDS on non-resident courier is withdrawn from section 53CC and put it into section 56.

14. Distributorship commission

53E 10% on commission or discount

10% (same)TDS is also applicable on dealer's promotional charges or fees or commission or any other payment called by whatever name

15. Foreign buyers agent

53EE 7.5% 10%

16. Bank interest 53F 15% if the deposit holder does not have any 12-digit TIN

10% (though not having any TIN) from: (1) Public university, (2) MPO enlisted educational institution, (3) ICAB, (4) ICMAB, and (5) ICSB.

17. Registration of leasehold property

53HH 4% (was applicable on RAJUK, CDA, RDA, KDA and National housing society)

4%(also applicable on any type of lessor)

18. Direct Advertisement

53K 3% 4%

19. Gain on sale of shares or securities traded in Stock Exchange

53O 10% applicable for investor being company or firm

withdrawn

20. Any some paid by real estate / land developer to the land owner

53P New 15% [TDS is applicable on signing money, subsistence money, house rent or in any other form called by whatever name]

21. Dividend 54 10% or 15% for resident individual, 20% for company or 30% for non-resident individual

Provision of TDS on non-resident is withdrawn from section 54 and put it into section 56.

22. Non-resident's income

56 Corporate rate for company, maximum rate for non-resident foreigner, and resident's rate for non-resident Bangladeshi

5%, 5.25%, 7.5%, 10%, 15%, 20% and 30% (25 specific service) Service-specific TDS rates are given in Table-3 below.

Table-2: New Tax Deduction at Source (TDS) u/s 52AA

New rate of deduction/provisionHead of ServiceCatering service 10% 3%Printing serviceCleaning service- (a) Commission (b) Gross receipts

10%1.5%

5%Private container port ordockyard service

Collection and recovery agency- (a) Commission (b) Gross receipts

10%1.5%

10%Stevedoring/berth operationcommission

Contract or toll manufacturing 10%10%1.5%

Private security service provider- (a) Commission (b) Gross receipts

Credit rating agency 10% 10%Product processing chargeEvent management- (a) Commission (b) Gross receipts

10%1.5%

5%Shipping agency commission

Indenting commission 7.5%10%1.5%

Supply of manpower- (a) Commission (b) Gross receipts

Meeting fees, training fees orhonorarium

10% 3%Transport provider

Mobile network operator, technicalsupport service provider or servicedelivery agents engaged in mobilebanking operations

10% 10%Any other service which is notmentioned in Chapter VII of thisOrdinance and is not a serviceprovided by any bank, insurance orfinancial institutions

Rate Head of Service RateDeductingAuthority

lGovernmentOrganizationl Corporationl NGO l Companyl Bank(including Co-operative Bank)l InsuranceCompany

(Deducting authority will not deduct tax at source or will deduct tax at a lower rate/amount if the party produces a certificate issued by the NBR to do so.)


Final discharge of tax liability u/s 82C has been withdrawn in following cases:1. TDS u/s 53O on capital gain from sale of shares of listed companies in the hand of company and firm

taxpayer was under clause (sss) of section 82C(2). Section 53O and clause (sss) of section 82C(2) are both deleted by the FA 2015.

2. TDS from gas bill @3% is also withdrawn from section 82C [clause (d) in proviso to sub-section (2) of sec. 82C amended].

3. TDS u/s 53CC for non-resident courier was u/s 82C. Relevant TDS section (sec. 53CC) is deleted and concerned TDS is shifted to sec.56, which is not u/s 82C.

Deemed Income u/s 19

There arefew amendments in section 19as follows:

l Loan exceeding Tk.5,00,000 through crossed cheque or bank transfer [section 19(21)]: Previously loan exceeding Tk.5, 00,000 could be received through crossed cheque only. Now loan can be received through bank transfer also.

l Deemed income in case of purchasing motor car/jeep at more than 10% of paid-up-capital [section 19(27) amended]: Since AY 2011-12, if any company purchases motor car/jeep at a price more than 10% of paid-up-capital then 50% of the amount that exceeds such 10% of paid-

Table-3: New Tax Deduction at Source (TDS) u/s 56New rate of deduction/provisionHead of ServiceAccounting or tax consultancy 20% 3%Courier service Advertisement making 15%

20%30%

Dividend- (a) Company (b) Other than company

Rate Head of Service RateDeductingAuthority

Advertisement broadcasting 20% 10%Insurance premiumAdvisory or consultancy service 30% 20%Interest, royalty or commission

Air transport or water transport 7.5% 20%Legal service Architecture, interior design orlandscape design

20% 15%Machinery rent

Artist, singer or player 30% 20%Management or event management

Capital gain received- (a)From securities not listed with stock exchange- (b)From securities listed with stock exchange but income not exempted in their home country

15%

10%

30%Pre-shipment inspection service20%Professional service

Certification 30% 5.25%Survey for oil or gas exploration Charge or rent for satellite,airtime or frequency

20% 5.25%Any service for making connectivitybetween oil or gas field and itsexport point

Contractor, sub-contractor or supplier 5% 30%Any other payments

30%Salary or remuneration

5.25%Exploration or drilling inpetroleum operations

Person responsible for making such payment.

TDS as the final settlement of tax liability: Following heads of deduction has been brought into thecoverage of section 82C:

Sl.SectionHead 1.52D All savings instrument2.53JJ Travel agent3.53BB Export of items mentioned at section 53BB [under new clause (kk) of sec. 82C(2), export of any goods cept certain items on which tax is deductible under section 53BBBB]4.53EE Foreign Buyers Agent[under new clause (mmm) of sec. 82C(2)]5.53F(1)(c)Bank interest or share of profit of Public university, MPO enlisted Educational institution, ICAB, ICMAB and ICSB[under new clause (mmmm) of sec. 82C(2)]


up-capital was deemed to be the income of the company. From this AY 2015-16, the change here is that 10% to be calculated not only on paid-up-capital but also on reserve and accumulated profit. That means, 10% on paid-up-capital together with reserve and accumulated profit.

Changes in the Provisions on Different Heads of Income:l Changes in "Salaries": Section 21

(a) Ceiling of tax exempted income from gratuity fund [Sixth Schedule, Part A, para 20]: Income from gratuity fund was fully tax exempted. From AY 2015-16, it will be tax exempted up to Tk. 2.5 crore.

(b) Workers profit participation fund (WPPF) [Sixth Schedule, Part A, para 21(d)]: Previously any payment from "a workers participation fund established under the Labour Act 2006" was fully exempted to the recipient (any employee or worker). From AY 2015-16, any payment from a workers participation fund established under the Labour Act 2006 and received by a worker as defined in section 2(65) of the said Labour Act is exempted. Thus, income from workers profit participation fund will be taxable in the hand of an employee other than workers.

(c) Scope of taxability of salary income of Government employees [SRO No. 198-Ain-Aykar/2015, dt.30.6.2015]: Government employees' salary income other than basic salary, festival bonus and bonus, is exempted.

(d) House rent allowance, Medical allowance and Conveyance (Rules 33A, 33I and 33D): Exemption limit of house rent and medical allowances and notional income for conveyance provided of a salaried person has been changed as follows:

l Changes in "Interest on Securities": Section 22(a) Income from Wage earners development bond, US dollar premium bond, US dollar investment

bond, Euro premium bond, Euro investment bond, Pound sterling investment bond and Pound sterling premium bond is exempted fully from AY 2015-16(new Para24A, Part A, Sixth Schedule).

(b) Interest income from a fixed income bond-type mutual fund or unit fund is exempted up to Tk. 25,000 from AY 2015-16. Previously, only dividend income from equity-type mutual/unit fund was exempted up to Tk. 25,000 (Para 22A, Part A, Sixth Schedule amended).

l Changes in "Income from House Property": Section 25(a) Deemed income at house property income [Sec. 25(h)(1) and 19(30)]: In case of

computing house property income a fixed portion of annual value is always allowable deduction. But if it is not really spent or partly spent then the remaining unspent amount shall be deemed to be the income from house property as per new sub-section (30) of section 19.

l Changes in "Income from Business or Profession": Sec. 28, 29, 30 and 30A(a) Ceiling of excess perquisite [Section 30(e)]: Ceiling of excess perquisite has been raised

form Tk. 3,50,000 to Tk. 4,50,000.(b) Set-off of losses [new proviso to Section 37]: Loss at any head could not be set-off against

income from manufacturing of cigarette.(c) One new head in the tax depreciation schedule [Third Schedule]: A new head

included in the tax depreciation schedule: Imported computer software @ 10%.

Particulars Earlier Provision New Provision

House rent allowance (rule 33A)

50% of basic salary orTk. 20,000 p.m., whichever is lower

50% of basic salary, or Tk.25,000 p.m., whichever is lower

Medical allowance (rule 33I)

10% of basic salary, or Tk.60,000 per year, whichever is lower

10% of basic salary, or Tk.1,20,000 per year, whichever is lower

Notional income for using full time car facility (rule 33D)

5% of basic salary 5% of basic salary, or Tk. 60,000, whichever is higher


(d) Notional cost price of motor car not plying for hire for depreciation purpose enhanced [sub-clause (a) of clause (6) of paragraph 11 of Third Schedule amended]: National cost price of motor car not plying for hire is enhanced from Tk. 20,00,000 to Tk.25,00,000 for the purpose of tax depreciation.

l Changes in "Income from Other Sources": Section 33(a) Taxability of Interest and Dividend Incomes only for educational institutions: Any

income from other sources (except interest and dividend) of Monthly Pay Order (MPO)enlisted educational institution or any other educational institution if it follows national curriculum and Government rules and regulations is exempted from AY 2015-16 (Para 52, Part A, Sixth Schedule).

(b) Taxability of Interest and Dividend Incomes only for professional bodies: Any income from other sources (except interest and dividend) received by any public university or any professional institute established under any law and run by professional body of Chartered Accountants or Cost and Management Accountants or Chartered Secretaries [i.e., the Institute of Chartered Accountants of Bangladesh (ICAB) or the Institute of Cost and Management Accountants of Bangladesh (ICMAB) or the Institute of Chartered Secretaries of Bangladesh (ICSB)]is exempted from AY 2015-16 (Para 53, Part A, Sixth Schedule).

(c) Extended exemption limit of cash dividend: Tax exempted cash dividend ceiling has been raised from Tk.20,000 to Tk.25,000 [Sixth Schedule, Part A, Para 11A].

(d) Deemed "Income from other sources" in relation to delayed payment [new sub-section (29) inserted under section 19]: Where an assessee, not being an assessee engaged in real estate business during any income year, purchases on credit any material for the purpose of construction of building or house property or its unit and fails to pay within the following year, then the outstanding amount would be "deemed income" under sub-section (29) of section 19. Thus, real estate company or developer company will not come under the purview of this new provision.

(e) Deemed "Income from other sources" for excess exempted income or excess income subject to low rate [new sub-section (31) inserted under section 19]: Where an assessee files a revised return under section 78 (filing of revised return for non-submission or rectification of omission or incorrect statement) or section 93 (income escaping assessment or under-assessment or assessed to lower rate or excess relief or refund) and shows tax exempted income or income that is subject to reduced tax rate, so much of the excess as it exceeds the amount shown in the original return shall be deemed to be income under sub-section (31) of section 19.

Income Year, Income Tax Return, TIN (Taxpayer's Identification Number) and Assessments:

l Uniform income year for all types of assessees [Section 2(35)]: For every company uniform income year /accounting year to be followed from 01.7.2016 and that is July to June. For Bank, Insurance and other non-banking financial institution, English calendar year will be income year as before.

l Curtailment of time extension power of the DCT for Return Submission [sec. 75]: Time extension power of the Deputy Commissioner of Taxes (DCT) has been curtailed from 6 months to 4 months. As per new provision, the DCT may extend the date up to two months from the last date for the submission of return and he may further extend the date up to two months with the approval of the Inspecting Joint Commissioner (IJCT) [proviso to sub-section (3) of sec. 75 replaced].

l Scrutiny assessment by the DCT after submission of return under the universal self-assessment[Sec. 82BB(2)]: After submission of return under universal self-assessment system, the DCT shall make scrutiny assessment, i.e., process such return and make adjustment: (i) if there is any arithmetical error in the return, and (ii) if there is any incorrect claim (if such incorrect claim is apparent from the existence of any information in the return). After necessary adjustment the DCT will send demand notice along with income computation sheet to the assessee. The time limit is 12 months from the end of the assessment year within which such intimation is to be sent to the assessee. If as a result of such scrutiny assessment, more tax is to be paid by the assesse, then DCT


shall have to give the assessee a reasonable opportunity of being heard.As per 'Explanation' to sub-section (2) of section 82BB, "incorrect claim apparent from the existence of any information in the return" shall mean a claim, on the basis of an entry, in the return-(i) of an item, which is inconsistent with another entry of the same, or some other item, in such return; or (ii) in respect of a deduction, where such deduction exceeds the specified statutory limit which may have been expressed as monetary amount, percentage, ratio or fraction."

l Compulsory Requirement of Twelve-digit TIN Certificate [Section 184A]: The compulsion of e-TIN certificate for a foreigner being a director of a foreign company doing business in Bangladesh [new clause (ll) inserted] is withdrawn to facilitate foreign direct investment. Another ineffective provision on compulsory e-TIN certificate for giving ISD connection to any kind of telephone [clause (k) deleted] is also withdrawn. However, in one new situation, now e-TIN certificate is compulsory, which is for "being a parent or guardian of a student of English medium school, situated in any city corporation or in any paurasabha of a district headquarter, following international curriculum [new clause (x) inserted].

Changes in Transfer Pricing Provisions

Under previous provision of sec. 107F (Report from an accountant to be furnished), every person who has entered into international transaction or transactions the aggregate of value which, as recorded in the books of account, exceeds Tk. 3 crore during an income year shall furnish, on or before the specified date in the form and manner as may be prescribed, a report from a Chartered Accountant. Under the new provision of replaced sec. 107F, the DCT may, by notice in writing, require that a person who has entered into international transaction or transactions the aggregate value of which, as recorded in the books of accounts, exceeds three crore taka during an income year shall furnish within the period as may be specified in the notice and in the form and manner as may be prescribed, a report from a Chartered Accountant or a Cost and Management Accountant regarding all or of a part of the information, documents and records furnished under section 107E. "Form of report to be furnished under section 107F" under rule 75 has also been changed.

Penal Provisions:Following changes have been introduced regarding penalty for defaults:

Sl. Head Section Earlier provision New provision

1. Non submission of statement of international transaction as per section 107EE

107HH New Maximum 2% of the value of such international transaction

2. Non submission of return 124 10% of last assessed tax or Tk.1,000 whichever is higher plus Tk.50 per day of default

(a)Total amount of such penalty will not exceed Tk. 5,000 in case an individual was not previously assessed.(b)50% of last assessed tax or Tk.1,000 whichever is higher in case of individual assessee who failed to submit return in time.

3. For failure to verify 12 digit TIN 124AA New Maximum Tk.50,000[NBR has given 25 authorities to verify TIN]

4. For failure to pay tax as per return

127 If 80% tax paid then no penalty could be imposed for the rest 20% shortfall

Penalty can be imposed for any amount of shortfall

5. For submitting fake audit report 129B New DCT, AJCT, CT (Appeal) or Appellate Tribunal shall impose upon such assessee who submitted fake audit report Tk.1,00,000 (fixed)


5.0 Conclusion:The Finance Minister has mentioned in his budget speech: "Our main objective in this fiscal year's budget will be to break free of the 6 percent growth trap, and climb up to higher growth trajectory" (Muhith, 2015: 95). For this purpose, this year (FY 2015-16) overall tax is targeted to increase by 29.55% from last year's revised budget and this will depend on the targeted increase of total direct taxes by 30.66% and total indirect taxes by 28.83% (GOB, 2015d; 2015e). However, the income tax is budgeted to increase by 33.65%. Thus, it is clear that Government has extensive income tax target and this will be achieved mainly through the enhanced extent of tax-net and tax-rate, which will have huge impacts and effects on the taxpayers and the economy in general. But the counter-effect on equity aspects due to expanded progressivity of overall taxation through slowly increased share of direct tax in total tax (ratio of direct and indirect taxes is 39.5:60.5 in FY 2015-16, which was 39.2:60.8 in the revised budget of FY2014-15) might help in building a more just and fair society in the long-run.

References:

GOB (2015a), The Finance Bill 2015 (Dhaka: GOB; placed in the Parliament on 4-06-2015).

GOB (2015b), The Finance Act 2015(Act No. 10 of 2015)(Dhaka: GOB; passed on 29.6.2015, Presidential assent on 30.6.2015 and published in the Gazette on 30.6.2015).

GOB (2015c), Annual Budget 2015-16: Budget in Brief [Dhaka: Ministry of Finance (MOF), GOB; 4.06.2015].

GOB (2015d), Annual Budget 2015-16: Annual Financial Statement (Dhaka: MOF, GOB; 4.06.2015).

GOB (2015e), Annual Budget 2015-16: Consolidated Fund Receipts (Dhaka: MOF, GOB; 4.06.2015).

Muhith, A M A (2015),Bangladesh Marches towards Prosperity: Paving the Way for Higher Growth-Budget Speech 2015-16(Dhaka: MOF, GOB; 4.06.2015).

Provisions for Prosecution:Following changes have been introduced regarding prosecution for offences:

Sl. Head Section Earlier provision New provision

1. Imprisonment for submitting fake audit report

165AA New Submission of fake audit report will be considered as an offence which is punishable with imprisonment for a term up to 3 years but not less than 3 months with or without fine up to Tk. 1,00,000

2. Imprisonment for giving employment of foreign national without valid work permit

165C New If any employer employed foreign nationals without valid work permit then it will be considered as an offence which is punishable with imprisonment for a term up to 3 years but not less than 3 months with or without fine up to Tk. 5,00,000

"Government has extensive income tax target to be achieved by enhancing extent oftax-net and tax-rate, which will have huge impacts and effects on taxpayers and the economy..."

"Vision is the art of seeing things invisible to others." - Jonathan Swift


National Budget 2015-2016Where It Comes and Where It Goes

The parliament passed the National Budget of Taka 295,100 crore for the fiscal year 2015-2016 and it was approved with majority votes.The National Budget has a link with the 7th Five Year Plan of Bangladesh. Let's see the objectives of the 7th 5 year plan what is mentioned below:

l Technically and technologically knowledgeable man power developmentl Reduce the infrastructural gap in case of power and energyl Develop strategy to grow agro based industry and sme sectorl Develop policy to support export of ICT, education and health related servicesl Bring momentum in public and private investmentl Product diversification and bring momentum in export

Budget brings new taxes. It also allows new expenses of government, which is a receipt or a benefit of someone. Budget is also a distribution, it takes resource or wealth from someone and gives to another one. Most of the Government try to label their budget as levelizer that means it reduces gap between rich and poor. Unfortunately, it works in other way round, that is, siphon resources from the poor and transfer it to high net worth individuals or corporates. It's as usual. Rich has power, connection and intelligence to influence the policies of the Government. Poor are fragmented and scarred. They are far from the power base. Government has planned to realize Tk 45,000 crore additional revenues in 2015-2016 in comparison to revised budget of 2014- 2015 which is around 28% rise from that period. If economy grows at a rate of 6% and inflation is around 6% then around 12% rise is natural. Above that should be termed as abnormal or ambitious. Out of thatTk 41,300 crore will come from NBR tax. VAT will contribute Tk. 15,000 crore, Import duty and supplementary duty will contribute Tk. 9,000 crore. These two are indirect taxes which will bring Tk. 24,000 crore and Income tax which is direct tax will bring Tk. 16,000 crore. In total, NBR will contribute 176,370 crore taka out of that only 64,971 crore taka from Income tax which is around 37% and indirect tax is 63%.We don't know that these indirect taxes are regressive? That means, in proportion to income, poor has to pay more than the rich.

So, our budget collects proportionately more money from the poor than the rich. But where this money goes? Or why government needsso much more money? Let's see that:

Shawkat Hossain FCMAhas been serving with BD Venture Limited as it's Managing Director.

Sector wiseAllocation ofExpenditureFY 2015-16


Salary and benefit of government officials: Government needs around 15,000 crore taka to finance enhanced salary and benefit of government officials. As per revised budget of 2014-15 salary benefit was Tk30,605 crore which is enhanced to Tk46,578 crore in the budget of 2015-16. That means raise is more than 50%. Globally countries are heading for smaller government. Because government means inefficiency and corruption. Whereas we are heading towards bigger government. In many cases government machineries are not the facilitator rather stumbling block for private initiative. In the 'ease of doing business' ranking of World Bank Bangladesh positioned 130th out of 189 countries in 2014. Pakistan is 20 step and Nepal is 25 step ahead of us. Pakistan ranked 110th and Nepal ranked 105th. Bangladesh performed poorly in 'getting electricity' and 'property registration' parameter. In getting electricity' parameter- Bangladesh is the last among 189 countries. It needs 404 days to get electricity connection. It takes 245 days and 6.7% of property cost to register property - in which Bangladesh ranked 177th. These are the few indicators to realize how people are served by the bureaucracy.

Reverse Rabinhood: Rabinhood used to rob the rich and distribute that bounty among poor. Here we also find a Rabinhood but working in a reverse mode. He or she pickpockets poor and transfers the bounty to the rich. Timing also worked reverse way. Bounty is transferred before the pick pocketing done. An example is acquisition of asset, which is increased by Tk6,835crore. In the budget speech it was not mentioned - which asset is going to be acquired? On inquisitiveness one can find trace in the financial statement of different banks. It was revealed in the financial statement of Basic and Sonali bank that government acquired share of ofTk 1500 crore in the year 2015 and Tk 2205 crore in the year 2013.

Cannibalism: Interest on loan is Tk 35,109 crore, which is 12% of the budget. It is in increasing trend such as increased by Tk 5,244 crore from revised budget of 2014-15. This year again there is deficit of Tk 86,657 crore which is 5% of GDP. So, Government need more loan to pay the prior loan. In the year 2001-02 deficit was Tk 1,050 crore which was 3.3% of GDP.

Construction works increased by Tk10,848 crore: A major portion of this expenditure is for Padma bridge. In the budget, it was not mentioned, how much additional budget is allocated. However project cost is escalated several times- this shows lack of efficiency.

Quality of expenditure: Government has right to tax people in order to spend for public goods. Normally people spend for private goods. Because benefit is derived to them immediately. Public goods are those whose benefit received by many. So, no private persons are interested to spend for those goods such as roads, parks, lakes. Government is the custodian of people's money. Government has to ensure that money is spent properly and efficiently. In Non-Development revenue expenditure Tk 75,116 crore spent in 9 months of 2014-15, that means Tk 25,039 crore in each quarter, whereas revised budget is targeted Tk127,371 crore, that means Tk 52,255 will be spent in last quarter. In Development expenditure Tk 28,956 crore is spent in 9 months of 2014-15, that means Tk 9652 crore per quarter. Revised budget is targeted Tk 80,476 crore that means Tk 51,952 crore will be spent in 3 months which is double of 9 month's expenditure. Undoubtedly a major portion of this money will be misused and misappropriated.

Total expenditure allocated for education sector encompassing both primary and mass education and education ministry is Tk 31,605 crore which is spent for around 3.5 crore students. For health and Family planning Tk 12,695 crore is allocated for 16 crore people, that means Tk 793 per person per year. Though sector wise education is third largest receiver of fund, but if calculated per capita, it will be far behind. Will it be possible to achieve the objective 'to develop technically and technologically sound manpower' with such a meager budget? Or we are not putting our money where our mouth is?


Abstract

Banking system plays a vital role for the economic development of Bangladesh. It is clear that a poor banking system cannot support economic development in a country. Average Percentage of Classified Loans are higher in Bangladesh compared to other countries. Government has taken different initiatives to reduce this rate. Now trend of percentage of classified loans is decreasing. But it is still of two digits. The objective of this study is to compare the amount of classified loans and non-performing loans of four state-owned commercial banks and four first generation private commercial banks in Bangladesh. Data of four state-owned commercial banks and four selected first generation private commercial banks for the period 2000 to 2010 were analyzed. In addition, a regression model is used to estimate the impact of spread and loan & advances on the classified loans of these banks.

Key words: Classified loan, Non Performing Loan, State-Owned Commercial Banks (SOCBs), Private Commercial Banks (PCBs).

A Comparative Studybetween SOCBs and PCBs in Bangladesh

Bishnu Pada BanikAssociate Professor,Department of Statistics, Computer & MathematicsDhaka Commerce College, Bangladesh

Prahallad Chandra Das, ACMAAssistant Professor,Department of Accounting and Information Systems,Faculty of Business StudiesJatiya Kabi Kazi Nazrul Islam University,Trishal, Mymensingh, Bangladesh

Classified Loans andRecovery Performance:


Basis for Loan Classification

In general the loans are repaid in installment according to bank's direction. Some loans are repaid all at a time. Nonperforming loans ("NPLs") refer to those financial assets from which banks no longer receive interest and/or installment payments as scheduled. They are known as non-performing because the loan ceases to "perform" or generate income for the bank Choudhury et al. (2002) state that the nonperforming loan is not a "uniclass" but rather a "multiclass" concept, which means that NPLs can be classified into different varieties usually based on the "length of overdue" of the said loans. If any loan is not repaid then notices are sent to the customer with the consent of HO. HO has a separate credit recovery wing. It advises the branch to take all necessary actions against the loan. Sometimes legal actions may require recovering the loan. All types of loans a Bank fall into following four categories:

a. Unclassified: Repayment is regular.b. Substandard: Repayment is irregular but has

reasonable prospect of improvement.c. Doubtful Debt: Unlikely to be repaid but

special collection efforts may result in partial recovery.

d. Bad/Loss: Very little chance of recovery.

(A) Objective Criteria

Continuous Loan or Demand Loan not repaid/renewed within the fixed expiry date for repayment is taken as past due/overdue from the following day of the expired date.

Determination of Past Due/Over Due:

(i)Any Continuous Loan if not repaid/renewed within the fixed expiry date for repayment or after the demand by the bank will be treated as past due/overdue from the following day of the expiry date.

(ii) Any Demand Loan if not repaid within the fixed expiry date for repayment or after the demand by the bank will be treated as past due/overdue from the following day of the expiry date.

(iii) In case of any installment(s) or part of installment(s) of a Fixed Term Loan, irrespective of amounting, is not repaid within the due date, the amount of unpaid installment(s) will be termed as 'past due or overdue installment'.

(iv) The Short-term Agricultural and Micro-Credit if not repaid within the fixed expiry date for repayment will be considered past due/overdue

1. INTRODUCTIONNon-performing loans ("NPLs") refer to those financial assets from which banks no longer receive interest and/or installment payments as scheduled. They are known as non-performing because the loan ceases to "perform" or generate income for the bank. Choudhury et al. (2002) state that the nonperforming loan is not a "uniclass" but rather a "multiclass" concept, which means that NPLs can be classified into different varieties usually based on the "length of overdue" of the said loans. NPLs are viewed as a typical byproduct of financial crisis: they are not a main product of the lending function but rather an accidental occurrence of the lending process, one that has enormous potential to deepen the severity and duration of financial crisis and to complicate macro economic management (Woo, 2000). This is because NPLs can bring down investors' confidence in the banking system, piling up unproductive economic resources even though depreciations are taken care of, and impeding the resource allocation process.

Banking system plays a vital role for the economic development of Bangladesh. The performance evaluation of a commercial bank is usually related to how well the bank can use its assets, shareholders' equities and liabilities, revenues and expenses. The performance evaluation of banks is important for all parties including depositors, investors, bank managers and regulators.

It is clear that a poor banking system cannot help for the economic development in a country. Before liberation poor banking system was continuing in Bangladesh (the then East Pakistan). After independence, the Govt. of the peoples' Republic of Bangladesh nationalized all the local banks as well as Pakistani banks. The rapid increase in overdue loans in different years, irregular payment, irregularities in management, inefficiencies of the official, staffs, pressure of trade union, deterioration of the level of customer services, or salary, job security, week communication systems etc. has made profit performance poor. As a result non-performing loans are being increased and amount of classified loans are also being increased. Many researches have highlighted operational efficiency of the NCBs in Bangladesh, performance evaluation of NCBs in Bangladesh, profitability of the commercial banks in Bangladesh etc. But adequate no. of researches have not been performed about classified loans though it is a vital issue at present. That is why, this study has been designed.


efficiency by improving performance. Normally, the financial performance of commercial banks are measured using a combination of financial ratios analysis, benchmarking, measuring performance against budget or a mix of these methodologies. Hassan & Reza (1997) prepared a study on "Efficiency through competition comparison of commercial Banks of Bangladesh in respect to several dimension of deposit, they identified, in 1983 PCBs are allowed to start the banking activities for the betterment than the services of NCBs. Practically activities of PCBs were increased day-by-day to face the challenging situation with the NCBs in Bangladesh through the deposit, loan & other dimensions. Alam et al. (2011) in their study conclude that ranking of banks differ as the financial ratio changes. Baral JK (2005) concluded in his study that Credit risk is one of the factors that affect the health of an individual bank while asset quality analysis involves taking account of the likelihood of borrowers paying back loans. The extent of the credit risk depends on the quality of assets held by an individual bank. The quality of assets held by a bank depends on exposure to specific risks, trends in non-performing loans, and the health and profitability of bank borrowers. Muniappan (2002) argues that a bank with high level of NPLs is forced to incur carrying costs on non-income yielding assets that not only strike at portability but also at the capital adequacy of a bank, and in consequence, the bank faces difficulties in augmenting capital resources. Bonin and Huang (2001) also state that the probability of banking crises increases if ?nancial risk is not eliminated quickly. Such crises not only lower living standards but can also eliminate many of the achievements of economic reform overnight.

3. OBJECTIVES OF THE STUDY:The main objective of the study is to compare the status of classified loans and recovery performance of SOCBs and PCBs of first generation . The objectives of the study can be stated as below-

i) to compare the amount of classified loans between State-Owned Commercial Banks and first generation Private Commercial Banks in Bangladesh.

ii) to compare the amount of non- performing loans between State-Owned Commercial Banks and first generation Private Commercial Banks in Bangladesh.

after six months of the expiry date.

(B) Qualitative Judgment

Uncertainty or doubt in respect of recovery of any Continuous Loan, Demand Loan or Fixed Term Loan needs classification on the basis of qualitative judgment or objective criteria. If any situational changes occur after the loan was extended or if the capital of the borrower is affected due to adverse conditions or if the value of the securities decreases or if the recovery of the loan becomes uncertain due to any other unfavorable situation, the loans are classified on the basis of qualitative judgment.

2. LITERATURE REVIEWAdhikary (2006) found, immediate consequence of large amount of NPLs in the banking system is bank failure as well as economic slowdown. The causes of nonperforming loans are usually attributed to the lack of effective monitoring and supervision on the part of banks, lack of effective lenders' recourse, weakness of legal infrastructure, and lack of effective debt recovery strategies. Hou (2001) said, There is no global standard to define non-performing loans at the practical level. Variations exist in terms of the classification system, the scope, and contents. Such problem potentially adds to disorder and uncertainty in the NPL issues. Non-performing loans have non-linear negative effect on banks' lending behavior. Adhikary (2008) found Poor enforcement of laws relating to settlement of NPLs, followed by in suf?cient debt recovery measures on the part of the banks, has also aggravated the financial malaise, although a decrease in NPLs is noticed since the year 2000. Islam (2012), in a study on BHBFC found that 97.6 per cent of the variability in the volume of classified loans can be explained by total advances, provisions, legal charges and spread. The variable legal charge was found to be statistically insignificant. Dash (2010) found, all the selected independent variables(Real GDP per Capita, Inflation, and Total Loans as independent variables) have significant impact on the depended variable(Non Performing Loan Ratio), however, values of coefficients are not much high. Banks should control and amend their credit advancement policy with respect to mentioned variables to have lower non-performing loan ratio. Avkiran (1995), in his study said that the trend of commercial banking is changing rapidly. Competition is getting stiffer and, therefore, banks need to enhance their competitiveness and


Percentage of Classified Loans of SBL is found highest compared to other state-owned followed by ABL.JBL and RBL have lower percentage of classified loans. (calculation of collected data by researcher)

Percentage of Classified Loans of IFICBL is found highest compared to other Private Commercial Banks. POCL of UCBL is the lowest.(calculation of collected data by researcher)

The next table exhibits non-performing loans levels of state-owned& private commercial banks in Bangladesh from 2000 to 2010.

Percentage of Non-Performing Loans of SBL is found highest (70.05%) compared to other state-owned Commercial Banks followed by ABL (44.57%) and RBL (44.00%). JBL (17.40%)has the lowest NPL. That means JBL has the best recovery performance among the State-owned Commercial Banks.

Percentage of Non-Performing Loans of UCBL is found highest (31.02%) compared to other Private Commercial Banks followed by IFICBL (21.37%) and CBL (20.72%). NBL (18.28%)has the lowest NPL. That means NBL has the best recovery performance among the selected Private Commercial Banks.

Multiple Regressions(for state own commercial banks)

We have conducted multiple regression to see the influence of all the independent variables on the dependent variable by using SPSS 20 and accordingly our regression model is -

Y = a+ b1 X1 + b2 X2 + error.

iii) to test the significance of spread and loan & advances on classified loans.

iv) to test the impact of classified loans on net profit, bad debts and investment.

4. METHODOLOGYThe purpose of this study is to compare the amount of classified loans and non performing loans between State-Owned Commercial Banks and First Generation Private Commercial Banks in Bangladesh. The study is descriptive based on only secondary data. The data are mainly obtained from the Annual Reports of the State-owned Commercial Banks and four selected first generation Private Commercial Banks of Bangladesh, Annual Reports of Bangladesh Bank and Bangladesh Bank Bulletin. Data of eleven years from 2000 to 2010 have been evaluated to assess the amount of classified loans and non performing loans of the selected commercial banks in Bangladesh. All (four) state-owned commercial banks, which have been established in 1972 in Bangladesh after liberation and four first generation Private Commercial Banks which have been established in 1983 are selected purposively for the analysis in this study. The financial data have been used to assess the amount of classified loans and non performing loans of the banks. Data of different years have been used to test the hypothesis for inference. The researchers have applied a multivariate regression model to test the significance of variables on classified loans and simple regression to show impacts of classified loans on net profit , bad debt and investment of the selected banks of Bangladesh. The classified loan is assumed as dependent variable while spread and loan & advances are as independent variables for multiple regression and again for simple regression, classified loan as independent variable while net profit after tax , bad debt and investment as dependent variables .The collected data have been analyzed by using SPSS 20.

5. ANALYSIS AND FINDINGS:5.1 AnalysisState-owned commercial banks have been suffering from huge classified loans since inception of Bangladesh. Government took various actions to reduce the classified loans levels. Levels of classified loans were increased up to 1998 and then trend is decreasing.

YEAR State-owned commercial Banks Private Commercial Banks

SBL JBL ABL RBL NBL CBLIFICBLUCBL

2000 68.8430.5550.9427.5911.43 23.1 38.4543.02

2001 64.7826.35 48.8 32.7214.98 23.2132.1946.85

2002 58.4729.5154.3339.6914.91 21.7215.1450.11

2003 55.5522.3248.5842.9219.56 22.6415.5837.62

2004 47.1716.6851.5342.1117.96 15.8814.7126.93

2005 22.9311.4423.0444.4320.25 14.5320.9521.49

2006 43.05 13.9 22.03 43.9 21.18 21.5220.1619.83

2007 119.0916.3836.8544.6324.73 22.3915.4921.33

2008 117.9410.5437.3648.0620.72 23.0018.0626.54

2009 86.72 8.44 53.1650.2920.42 21.2022.4825.46

2010 85.98 5.24 63.6167.6514.99 18.9921.8522.02

Average 70.0517.4044.5744.0018.28 20.7221.3731.02

Table: Percentage of Non-Performing Loan of State-owned & Private Commercial Banks

Source: Annual Reports of the State-owned & Private Commercial Banks


independent variable on the dependent variable and accordingly we developed a null hypothesis which is -

Ho4 : The volume of classified loan does not affect the volume of net profit.

From the regression analysis we observed that R square is .024, F-ratio is 1.044 and significance level is .313.

Test result shows that the regression equation between classified loan and net profit is insignificant which means our null hypothesis is accepted. The volume of classified loan does not significantly affect the volume of net profit.

Impact of classified loans on Bad Debt

Ho5: Classified loan does not affect the volume of bad debt

From analysis we observed that R square is .313, F-ratio is 19.174 and significance level is .000.

F-test result shows that the regression equation between classified loan and bad debt is found to be highly significant which means our null hypothesis is rejected.

Impact of classified loans on Investments

A simple regression analysis taking investments as dependent variable and classified loans as independent variable is attempted and accordingly we developed a null hypothesis which is -

Ho6: Classified loan does not affect the volume of investment.

From regression analysis we observed that R square in .044, F-ratio is 1.947 and significance level is .170 which means our null hypothesis is accepted. That is classified loans does not significantly affect the volume of investment.

Multiple Regressions (for first generation private commercial banks)

We have so far conducted simple regression analysis to see the extent of influence of each independent variable on the dependent variable. Now we shall conduct multiple regressions to see the influence of all the independent variables on the dependent variable and accordingly our regression model is -

Y = a+ b1 X1 + b2 X2 + error. Where, a= Constant, X1 =Total loan and

Where, a= Constant, X1 =Total loan and Advances, X2= Spread , Y= Classified loan and b1, b2 =Regression Co-efficient.

We have developed a null hypothesis which is -

Ho1: Two independent variables taken together do not affect the volume of classified loans.

From the multiple regression analysis we observed that R square is .437, F- ratio is 15.891 and significance level is .000 which means that our null hypothesis is rejected. So, it is evident that 43.7 per cent of the variability in the volume of classified loans can be explained by total advances, and spread.

Ho2: The volume of total advances does not affect the volume of classified loans.

From regression analysis we observed that regression co-efficient = .383 and significance level is .004.

The significance level of F-ratio is .004 which means that our null hypothesis is rejected. F-test denotes that more advances tend to give rise to more classified loans.

Ho3 : The volume of spread does not affect the volume of classified loans.

From the analysis we observed that regression co-efficient=-.676 and significance level is .000.

Thus we observed that F-ratio is highly significant which means that our null hypothesis is rejected. F-test supports the argument that regression analysis provides reliable explanation for the behavior of the variable spread.

We can comment that the co-efficient of determination of the multiple regression is less than 1 which indicates that there are some other explanatory variables that we could not identify through the extent of influence of that or those variables is very high.

We have so far treated classified loan as dependent variable but this variable can also exert influence on other variables such as investments, net profit before tax and bed debt.

Impact of classified loans on Net Profit

In order to test the influence of classified loan on net profit we have conducted simple regression analysis to see the extent of influence of each


Ho10 : The volume of classified loan does not affect the volume of net profit.

From the regression analysis we observed that R square is .177, F-ratio is 9.062 and significance level is .004.

Test result shows that the regression equation between classified loan and net profit is highly significant which means our null hypothesis is rejected. The volume of classified loan significantly negative impact on the volume of net profit.Impact of classified loans on Bad Debt

Ho11: Classified loan does not affect the volume of bad debt

From analysis we observed that R square is .786, F-ratio is 154.566 and significance level is .000.

F-test result shows that the regression equation between classified loan and bad debt is found to be highly significant which means our null hypothesis is rejected. That is, classified loan has highly positive impact on the volume of bad debt.

Impact of classified loans on Investments

A simple regression analysis taking investments as dependent variable and classified loans as independent variable is attempted and accordingly we developed a null hypothesis which is -

Ho12: Classified loans does not affect the volume of investment.

From regression analysis we observed that R square in .275, F-ratio is 15.968 and significance level is .000 which means our null hypothesis is rejected. That is classified loans has significantly negative impact on the volume of investment.

5.2 Findings This study explores that the percentage of classified loans of SBL is found highest compared to other state-owned Commercial Banks and the percentage of classified loans of IFICBL is highest compared to other Private Commercial Banks.

It is found that JBL has the best recovery performance among the State-owned Commercial Banks where NBL has the best recovery performance among the selected Private Commercial Banks.

This study uncovered that spread and loan & advances together have significant impact on classified loans in both state- owned commercial banks and first generation private commercial

Advances, X2= Spread and b1, b2 =Regression Co-efficient.

We developed a null hypothesis which is -

Ho7: Two independent variables taken together do not affect the volume of classified loans.

From the multiple regression analysis we observed that R square is .434, F- ratio is 15.691 and significance level is .000 which means that our null hypothesis is rejected. So, it is evident that 43.4 per cent of the variability in the volume of classified loans can be explained by total advances, and spread.

Ho8: The volume of total advances does not affect the volume of classified loans.

From regression analysis we observed that regression co-efficient = .277 and significance level is .501.

The significance level of F-ratio is .501 which means that our null hypothesis is accepted. F-test denotes that advances affects classified loans slightly.

Ho9 : The volume of spread does not affect the volume of classified loans.

From the analysis we observed that regression co-efficient=-.919 and significance level is .030.

Thus we observed that F-ratio is highly significant which means that our null hypothesis is rejected. F-test supports the argument that regression analysis provides reliable explanation for the behavior of the variable spread.

Finally we can comment that the co-efficient of determination of the multiple regression is less than 1 which indicates that there are some other explanatory variables that we could not identify through the extent of influence of that or those variables is very high.

We have so far treated classified loan as dependent variable but this variable can also exert influence on other variables such as investments, net profit before tax and bed debt.

Impact of classified loans on Net Profit

In order to test the influence of classified loan on net profit we have conducted a regression run and accordingly we developed a null hypothesis which is -


banks. But loan & advances affects classified loans significantly in state-owned commercial banks only. Spread affects classified loans significantly in both state-owned commercial banks and first generation private commercial banks. This study also found that classified loans have significant impact on bad debts in both state-owned commercial banks and first generation private commercial banks. Classified loans have not significant impact on investment in state-owned commercial banks but in first generation private commercial banks, classified loans have significant impact on investment.

6.CONCLUSIONS:Though percentage of classified loan is increasing among commercial banks, the amount of POCL is higher in state -owned commercial banks than that of private commercial banks .Average Recovery performance of private commercial banks is higher than that of state-owned commercial banks. Spread and loan & advances have together significant impact on classified loans in both state-owned commercial banks and first generation private commercial banks. Again, classified loans have significant impact on bad debts in both state-owned commercial banks and first generation private commercial banks.

For improving the debt recovery environment and solving the NPL problems of the country some recommendations are as follows-

We have to institute immediately a concrete NPL management strategy equipped with both preventive and resolution measures. It is also needed to institute sufficient measures to address the flow problem of bad loan effectively. We must ensure cooperation, sincerity and accountability of involved parties such as plaintiffs, defendants, lawyers and judges to make the settlement process vibrant and speedy. It is needed to exercise syndicated financing technique for large loans and to minimize unhealthy competition among banks in Bangladesh. The supervisory and monitoring functions of Bangladesh Bank have to be strengthened so as to discipline banks that engage in malpractice. Specific tools and techniques have to be developed to distinguish the willful defaulters from the genuine ones. Finally, emphasis must be placed on ethical standards in the banking profession from all corners to make the credit environment trustworthy and vibrant.

References:

Alam HM, Raza A, Akram M.A (2011),"Financial performance comparison of public Vs private banks: The case of commercial banking sector of Pakistan." ,Int. J. Bus. Soc. Sci., 2(11): 56-64.

Annual Reports of Bangladesh Bank during 2000-2010.

Annual Reports of NCBs during 2000-2010.

Avkiran NK (1995) ,"Developing an instrument to measure customer service quality in branch banking. Int. J. Banks Mark.", 12(6): 10-18.

BK Adhikary(2006), "Nonperforming Loans in the Banking Sector of Bangladesh: Realities and Challenges", Journal of BIBM, Bangladesh,vol vi, No.1.

BK Adhikary(2008), "Impacts of laws related to settlements of NPLs of Commercial Banks in Bangladesh.", Journal of BIBM, Bangladesh,vol ix, No.1.

Bangladesh Bank Bulletin during 2000-2014.

Baral JK (2005),"Health check-up of commercial banks in the framework of CAMEL: A case study of joint venture banks in Nepal", J. Nepalese Bus. Stud., 2(1): 41-55.

Bonin, P. John, Huang, Yiping ( 2001), "Dealing with the Bad Loans of the ChineseBanks," Journal of Asian Economics, vol(12),197-214.

Hassan, Reza. (1997),"Efficiency Through Competition: Comparison of Commercial Banks", Journal of Business Studies, Faculty of Commerce, Dhaka University, vol. 16(1), pp. 113-130.

Islam Tazul (2012), "Factors Influencing Loan Classification of BHBFC - An Evaluation", Bangladesh Res. Pub. J. 7(2): 201-211.

M. K. Dash ( 2010), "The Determinants of Non-Performing Assets in Indian Commercial Bank: An Econometric Study"

Muniappan, G.P. ( 2002), "The NPA Overhang- Magnitude, Solutions, Legal Reforms." Paper presented at CII Banking Summit, Mumbai, April: 25-26. Unpublished.

Yixin Hou (2001), "The Non-performing Loans: Some Bank-level Evidences", Journal of Banking and finance, 25-46.

"Go to the people. Learn from them. Live with them. Start with what they know. Build with what they have. The best of leaders when the job is done, when the task is accomplished, the people will say we have done it ourselves."- Lao Tzu


Abstract

Import financing is a vital requirement of the import firms for smooth handling of operations. Commercial banks of all types are involved in various degrees of import financing based on their availability of foreign exchange and attitude towards risks. Various firms of import financing programs can be availed by the import firms subject to their credit worthiness and bank-client relationship. Bangladesh has to make more import payments to the Asian overseas suppliers than those of suppliers from other developed countries. Import financing problems are found to vary from the bank and client's point of view. Clearly, well-thought policy measures can help the financially unsound import firms to utilize the available import financing facilities in Bangladesh.

Keywords: Creditworthiness, L.C. margin, liquidity of commercial banks, core competencies, PAD, LTR, LIM, charter party and exchange control.

Adiba NaziaLecturer, Department of Marketing,Premier University, Chittagong

IMP

OR

TAn Insight into Import Financingin Bangladesh


Government of India has simplified the customs laws and procedures as a part of its trade liberalization policy. But the scenario in Bangladesh is not similar. As a consequence of failure of the importers to import in right time; scarcity is often created in the domestic market of Bangladesh for many essential goods. Many import firms complained that price stability in the market is hampered due to non-availability of import finance from the banking channel. Some banks also experienced liquidity problems making it difficult to assist the import firms financially. In the interest of steady national growth, this problem of liquidity shortage needs to be addressed at the earliest opportunity.

It is true that banks possessing executives with adequate knowledge and strong skill-base in foreign exchange handling are capable of rendering efficient import financing services. The number of bank branches equipped with such core competencies is extremely limited resulting in import financing problem for the clients. Newspaper reports reveal that the import firms are dissatisfied with high interest rate on different types of import financing along with various miscellaneous charges, which definitely lead to the escalation of import costs and resulting eventually in price hike of the imported goods in the domestic market. The inflation witnessed sharp increase during the past days due to increase in the price of imported goods. Under such situation, consumer sufferings can be easily understood.

Bangladesh is an import-dependent country. It has to import goods for catering to the national scarcity in the supply of essential goods, import of raw materials, accessories and machineries to foster the industrialization process. Its import expenditure has been increasing rapidly. In the backdrop of the situation, the country is in need of efficient, diversified, effective and time befitting import financing programs. But at present, it seems to be lacking greatly in the country. It can be said that our banking system is lagging far behind the expectations of our import firms in respect of import financing. Large import firms also allege that their import financing needs cannot usually be met without syndicate import financing.

The above scenario clearly hints that an exhaustive study on import financing in Bangladesh may be undertaken to enrich the existing literature. This induced the researcher to embark upon this study.

Introduction:Import financing accounts for the lion's share of a country's foreign trade financing. It needs to be made available by banks on easy terms and conditions to facilitate the smooth import operations in a country. Each import deal has huge amount of financial involvement, which many import firms cannot afford to arrange from their own or institutional fund. This is why, they are to rely heavily on banks or other financial institutions for the supply of import finance. Keeping this in view, most commercial banks have devised import financing programs on various terms and conditions. These banks have designed programs to offer import credit to the clients at various stages of import transaction. In essence, import firms must possess sufficient creditworthiness to make use of the import financing facilities of banks. A cordial bank-client relationship is also a sine-qua-non for availing import financing of the commercial banks.

In Bangladesh, public banks have been working side by side with the foreign commercial banks and local private banks to serve the financial market. Most of these banks are found to offer import credit through the letter of credit mechanism. These banks have established relationship with the foreign banks to handle import financial transactions smoothly and efficiently. The entire import financing operations are guided and controlled by Bangladesh Bank's foreign exchange control operations and import policy.

The Research Problem:Despite the fact that banks tend to have positive attitude towards providing import credit to the clients because of comparatively less perceived risks in such credit, all import firms cannot avail the import financing programs of banks smoothly as per their needs. The paucity of foreign exchange at the disposal of banks often creates bottlenecks in providing LC-based import financing. In case of margin to be paid to the banks by clients for opening letter of credit, commercial banks are found to show discriminatory behavior. LC margin is found to vary from 10 to 100 percent depending upon the bank-client relationship and perceived risk in each export transaction. Clearly, this is contrary to the interest of small importers and natural justice. The import of goods in planned quantity atthe right time is inhibited due to strict foreign exchange and customs rules. Rathor B.S. and Rathor J.S. (1993) comment that the


to the C&F agents.n Internal transportation costs after the

clearance of goods from the port to destination.

n Bank's interest and other service charges payable on import financing.

n Margin to be deposited to the bank for the issue of letter of credit.

n Warehousing charges for the imported goods.

n Costs associated to deal with the exchange rate fluctuation risks.

From the above lists of cost heads for imports, it is evident that the financial requirements for imports must be precisely estimated, collected from most appropriate sources that minimize the costs and ensure smooth handling of import transactions of the import firms. However, Khan A.R. (2009) is of the opinion that before extending any form of loan including import financing, bank authority should undertake critical examination of the eight step credit analysis including: "a) collecting loan information of the applicant, b) collecting business information for which loan is sought, c) collecting the primary risks related information, d) assembling all credit information together, e) analyzing sensitive risky credit information, f) analyzing refined and very essential risk information, g) making decision on the basis of loan analysis, h) design the appropriate loan structure according to the positive decision."

Research Objectives of the Study:This study aims at highlighting the focal aspects of import financing in Bangladesh. Specifically it intends to achieve the following research objectives:

n To bring into focus the different import financing programs offered by the commercial banks of Bangladesh.

n To examine the different categories of import financing payments that is in vogue in the country.

n To analyze the L.C. based import financing performance of commercial banks of the country.

n To identify the problems faced by banks and customers regarding import financing.

n To suggest some measures that may help improve the overall import financing in Bangladesh.

Literature Review:Daniels J.D., Radebaugh L.E. and Sullivan D.J. (2009) define, "Importing is the process of bringing goods, services into a country and results in the importer paying money to the exporter in the foreign country". Import financing is an integral part of import operations, which aims at procuring the needed fund at the right time from the bank or specialized financial institution for meeting the financial obligation to the foreign supplier or export firm for the import of goods. Goldsmith H. R. (1980) opines that at the time of approaching bank for import financing, the firm should give an accurate personal financial statement along with definite projection of cost and profit analysis so as to convince the bank about the firm's capability to avail import financing. In the opinion of Das U.C., Mozumder M. A., Rahman M. M. and Islam S.M. M. (2006), the major portion of import financing is extended through letter of credit which is comprised of the following five major steps:

1) 1) Issuing of letter of credit through issuing bank.

2) Advising of letter of credit through the negotiating bank.

3) Amendment in letter of credit through mutual negotiation between the import and export firms.

4) Presentation of letter of credit through the issuing bank.

5) Settlement of claims of exporter through the issuing bank.

The post-import financing facilities are also rendered by commercial banks. The following four forms of post-import finance are commonly found:

n PAD (Payment against document)n LTR ( Letter against trust receipt)n HP (Hire purchase)n Contract sale

Clearly, import firms are to depend on the bank's import financing programs to meet the following import costs:-

n Costs of import goods to be paid to the foreign supplier.

n Freight charges involved in transporting imported merchandise.

n Insurance cost on the imported goods.n Import duties and port charges for the

imported merchandise.n Commission and other charges to be paid


import financing. This made the research efforts very difficult.

n This study had to be completed in the midst of serious academic pre-occupations of the private university in which the researcher has been working. As such, ample devotion was not possible to complete the study within short time.

n There is a severe shortage of research articles on import financing not only in the context of Bangladesh, but also from the perspective of other countries. This made the task of literature review on the research issue in a systematic way quite arduous.

n The study could not cover all important aspects of import financing of commercial banks operating in Bangladesh due to non-availability of concerned data..

Types of Import Financing Program Offered by Different Commercial Banks:LC-based Import Financing:Import financing to the clients is basically extended by means of letter of credit mechanism. Under this method, letter of credit is opened in favor of import firm to provide financial guarantee to the foreign supplier of goods or export firm regarding the payment of necessary import dues to the beneficiary on compliance of certain terms and conditions as stipulated in the letter of credit. To avail LC-based import financing, the importer is required to follow certain formalities as specified in the exchange control rule of Bangladesh Bank.

At first, the import firm has to apply for the issue of Letter of Credit Authorization Form (LCAF) to its bank. The bank will issue LCA Form if it is satisfied regarding the business status and reputation of the applicant. It must be accompanied with the following required documents:

n Pro-forma" Pro-forma Invoice supplied by the export firm or indent issued by indenting firm.

n Import Registration Certificate (IRC) duly renewed.

n Marine Insurance Policy issued by an approved General Insurance Company regarding the coverage of marine risks of the imported merchandise with money

Research Methodology:In order to conduct the study in compliance with the pre- determined research objectives, the researcher mainly used secondary sources of data. The publications of Bureau of Statistics, Bangladesh Economic Review, Annual Publications of Commercial banks, Bangladesh Bank Reports, research articles and text books concerning the research issue furnished useful secondary data.

The collected data were verified to make sure that these are reliable and usable. The collected data were properly analyzed to derive relevant findings. A standard format was followed to present the findings in a research paper. This article is based on these findings written in a systematic manner.

Importance of the Study:In view of acute shortage of literature on import financing in Bangladesh, students pursuing higher studies in Finance and Marketing cannot acquire up-to-date practical knowledge on the subject. Hopefully, this study may help to reduce this shortage of literature in the field and is expected to enlighten the students. In fact, import financing programs and practices need to be well-designed to meet the needs of import firms in Bangladesh. The findings of this study may assist in achieving need-based qualitative improvement in the import financing programs and procedures so that large and small import firms in Bangladesh may gain the easy access to the import credit facilities and thereby complete the import transaction properly for the benefit of the import firm and the nation as a whole.

It is often complained that a lot of manipulations occur in the process of import financing. In a bid to overcome this problem, this study may provide invaluable inputs for making right decision at the right time. Moreover, as the maiden research study, this is expected to improve the research capability of the author.

Limitations of the Study:The study was conducted in the midst of various constraints. The following limitations of the study are worth mentioning:

n It has been found difficult to elicit classified statistics on import financing from the banks. Other publications also do not provide detailed data on various aspects of


onward payment to the export firm by using banking channel.

Notably, the import firm may often need post-import finance because of its inability to make due payment. In such case, the import firm may pray any of the following forms of post-import financing facilities subject to compliance of documentary formalities. This should be completed before opening letter of credit for avoiding future eventualities in paying to foreign suppliers. The programs are:

n Loan against Imported Merchandise (LIM): This is basically an import loan provided to the clients against the imported merchandise. Under this arrangement, the bank asks for a margin from the client and the ownership of the imported goods will be retained by the bank until the full payment of loan by the client.

n Loan against Trust Receipt (LTR): In case of inability of a renowned importer to make payment in due date, the bank extends loan against trust receipt.Under this credit arrangement, the import documents are handed over to the import firm without any amount or paying partial amount on the signing of a trust receipt. The import firm commits to make the payment of loan within 60 to 90 days from the sale proceeds of the imported merchandise.

n Hire Purchase: Under this form of financing, the loan becomes operative from the date of purchase of relative foreign currency or from the date of investment of bank funds, as the case maybe and is provided for a period of 180 days to 360 days. The import firm gets the opportunity to pay the loan amount on a fixed installment basis.

n Payment against Document (PAD): This form of import loan is created for 21 days, the time being the tolerance for taking documents for the import firm. If the import firm fails to take delivery of the documents, the imported merchandise can be sold by the bank to recover the loan amount.

Non LC-based Import Financing:All import transactions do not take place under the coverage of letter of credit. There exists other forms of import financing in the business world, but in all import transactions where foreign exchange transfer is involved, the services of

receipt and KHA form.n Assigned documents of the applicant that

the bank is authorized to have the pledge of document and goods covered by the credit.

n IMP form duly signed.n Attested copy of TIN and Vat Certificate.

Then the bank will evaluate the LCA Form along with the supporting documents to ensure that the financial position and credit worthiness of the importing firm is quite satisfactory and the imported merchandise has good demand in the market. Meanwhile the credit report of the overseas supplying firm will also be procured through the exporters' bank or negotiating bank. Based on satisfactory report from the Trade Financing Department, the bank authority will accord permission to open letter of credit subject to LC margin decided by the bank authority depending upon the bank-client relationship and business reputation of the client.

The finalized letter of credit is then typed in several copies so that this can be sent to the exporters' bank or any other negotiating bank and the import firm. The letter of credit must be signed by the authorized executives of the bank before dispatching it to various parties through registered air mail or any other telecommunication mode. After receiving LC the exporter bank will ask the export firm to verify LC conditions thoroughly to make sure that these are in conformity with the import/export contract. Any point of discrepancies needs to be identified, raised and settled with the import firm through the issuing bank of LC. If all points of disagreement are settled amicably between the export firm and importer, then the exporter will confirm the letter of credit through its bank. The confirmed letter of credit will then guide all phases of the import transaction. In this regard, the export firm should be extremely careful to ensure strict compliance of letter of credit terms and conditions to complete the transaction successfully and receive the payment from importers. The payment is made in foreign exchange as specified in the letter of credit. For this purpose, the importer is asked by the concerned bank to deposit the balance amount after deducting LC margin from total amount of payment to be made to the foreign supplier. The importer is also in need of paying interest due on credit and other charges to the bank. It is the responsibility of the issuing bank to convert the local currency into specified foreign currency for


authorized foreign exchange dealing bank are used. The non LC-based alternative forms of import financing are elucidated below:

n Financing From the importer's own fund: These are many wealthy import firms possessing adequate foreign exchange in their foreign currency accounts. These firms have accumulated the amount from their profit in import transaction or export transaction or from their purchase of foreign remittance. If such firms have sufficient trading reputations, the foreign supplier may be willing to supply merchandise without LC coverage. In such case, the importer will import the goods by following the import rules or import policy guidelines or enter into import contract without LC coverage. If the supplier does not perceive business risks in such transaction, goods will be shipped as per the contract, documents will be sent to enable the importer in clearing the goods from the port. The import firm will then send the payment from its foreign exchange account by means of draft or pay order by using the bank services.

n Supplier's credit to the import firm: There are import firms which are capable of enjoying the supplier's credit facility because of their business acumen or marketing prudence. The supplier may also like to depend on such firms for their export marketing. Under this arrangement, the export firm will supply the goods and send the export documents to the import firm to facilitate clearance from the port. Here the importer gets the opportunity to make the payment after marketing the goods in domestic market within the credit period. This is most beneficial form of financing for the importer, although it enhances the credit risks of the export firm.

n Import financing under the baggage rules: Bangladeshi citizens working abroad can import certain goods into Bangladesh at different time intervals under the baggage rules as specified in the import policy. Bangladeshi people travelling abroad are also provided with the opportunity to import certain household, usable goods up to a certain amount provided they stay abroad for certain specified period. This importer pay for the goods by using traveler cheque or foreign exchange that they have earned abroad or foreign currency endorsed in the passport from the domestic commercial bank.

n Import financing under switch trading: Under switch trading transaction, an import firm enters into import contract with a foreign supplier for the procurement of foreign merchandise. In order to facilitate payment to the export firm from foreign source, the import firm then finalizes another export deal with a foreign buyer and asks the buyer to make the payment to the foreign supplier after the receipt of the merchandise. In such transaction, the import firm can earn certain margin of profit, if the export deal is made at reasonably higher price.

From the above table, it is evident that import under cash (C&F) is the main form of financing imports contributing 89.20% of import payment in Bangladesh. It is followed by import of EPZ(6.04%), import under IDB loan (4.06%) and import under loans and grants (0.36%) respectively.

Table-1: Import Payments by Category of Financing:

Source: Computed from Bangladesh Bank Statistics

Modes of ImportPayment

A Import under Cash (C&F) 139995.3 147762.8 213849.9 247665.2 749273.2 89.20%B Import under Loans and Grants (C&F) 578.0 376.4 322.1 1711.5 2988 0.36%C Import under IDB Loan 4782.2 5764.9 9651.3 13950.7 34149.1 4.06%D Other Unclassified Imports (C&F) 509.7 564.4 931.5 862.2 2867.8 0.34%E Import of EPZ (C&F) 8956.0 9774.9 15273.1 16774.3 50,778.3 6.04% Grand Total 154821.2 164243.4 240027.9 280965.7 840058.2 100%

2008-2009(Taka incrore)




Total of FourYears Import

Payment

AveragePercentage

of Four years


Basically banks provide finance to the import under cash through letter of credit mechanism. Import under IDB loan is used for meeting public sector imports. The export firm operating in EPZ performs import operations under back to back letter of credit facility. Imports under loans and grants are used mainly by the public sector but some private sector import firms also conduct import operation under this financing mode.

Table-2 depicts that China is the main supplying country representing 16.61 percent of total imports for Bangladeshi imported goods during the period from 2007-08 to 2011-2012. India secured second position (13.71%), Singapore third (5.54%), Japan fourth (4.13%) and Malaysia fifth (4.05%) position in respect of supplying imported goods to Bangladesh. In fact, major portion of import expenditures are made to the Asian countries. Affluent western countries occupy insignificant position as the supplying nations of Bangladeshi imported goods. This is mainly because of cost considerations.

The above table depicts that two types of commercial banks are involved in opening letter of credit for the import firms of different categories. Four public banks have strong involvements in import LC opening despite some variationsAmong the public banks,Sonali Bank represented(38.30%), Agrani Bank(29.51%), Janata Bank(24.83%) and Rupali Bank(7.36%) of public banks' L.C. opening. Amongthe total contributions of foreign banks in this regard,HSBC accounted for 47.86%,followed

Table-2: Import Payments of Bangladesh with top 10 countries

Source: Computed from Bangladesh Bank Statistics

1 India 3393 2864 3214 4569 4743 18783 13.71%2 People's Republic of China 3137 3452 3819 5918 6440 22766 16.61%3 Singapore 1273 1768 1550 1294 1710 7595 5.54%4 Japan 832 1015 1046 1308 1455 5656 4.13%5 Hongkong 821 851 788 777 703 3940 2.87%6 Taiwan 478 498 542 731 792 3041 2.22%7 South Korea 620 864 839 1124 1544 4991 3.64%8 USA 490 461 469 677 709 2806 2.05%9 Malaysia 451 703 1232 1760 1406 5552 4.05%10Other countries 10134 10031 10239 15500 16014 61918 45.18% Total 21629 22507 23738 33658 35516 137048 100%

Major countries(In million US Dollar)

Slno.

2008-20092007-2008 2009-2010 2010-2011 2011-2012 Total of5 years

Average % oftotal 5 years

Public Banks Name of the Bank Import LC Opened Total of Two yearsAverage Percentage 2011 2012 Sonali Bank 307478 287287 594765 38.3%Janata Bank 197285 188283 385568 24.83%Agrani Bank 268768 189628 458396 29.51%Rupali Bank 69263 45108 114371 7.36%Total 842794 710306 1553100 100%Foreign BanksName of the Bank 2011 2012 Total of Two yearsAverage PercentageStandard Chartered Bank 126085 169019 295104 29.74%Habib Bank 3576 2793 6369 0.64%State Bank of India 2245 4551 6796 0.68%Commercial Bank of Cylon 19568 23439 43007 4.34%National Bank of Pakistan 4477 6822 11299 1.14%City Bank N. A 69699 56193 125892 12.69%Uri Bank 8678 9747 18425 1.86%HSBC 195900 278996 474896 47.86%Bank Alfalah 4899 5496 10395 1.05%Total 435127 557056 992183 100%

Table-3: Import LC opened by Commercial Banks in Bangladesh (In million Taka)

Source: Computed from Bank and Financial Institution Division, Ministry of Finance, GOB Statistics


by Standard Chartered(29.74%), City Bank N.A.(12.69%), Commercial Bank of Cylon(4.34%) and other foreign banks represented less than 2% of L.C.opening of that category.

It is found from Table-4 that twenty eight commercial banks in Bangladesh played very crucial role in opening letter of credit for the import firms. Among them, the share of Islami Bank of Bangladesh was (13.6%), Prime Bank (7.96%), EXIM bank (6.31%), Southeast Bank (4.90%) Merchantile Bank (4.84%), Bank Asia (4.79%), EBL (4.73%), Pubali Bank (4.61%), Shahjalal Islami Bank (4.51%) and AB bank (4.18%) were found to have major involvements in import LC opening. Other private commercial banks have less than 4% contributions to L.C. opening of this segment. The above scenario is due to less perceived risks in import financing. It is true that opening letter of credit does not necessarily mean the extension of import financing by commercial banks. When the import firms are incapable of making payments to the foreign suppliers even after complying all the LC conditions and provisions of import contracts, the commercial banks usually come forward to extend import loan to the concerned import firms.

Table-4: Import LC opened by Commercial Banks (Private Banks)in Bangladesh (In million Taka)

Name of the Bank Import LC Opened Total of Two years Average Percentage 2011 2012Pubali Bank 90569 108120 198689 4.61%Uttara Bank 33038 35419 68457 1.59%AB Bank 79463 100370 179833 4.18%The City Bank 43474 58420 101894 2.37%Islami Bank 301207 284587 585794 13.6%IFIC Bank 71517 80710 152227 3.53%UCBL 90920 94844 185764 4.31%ICB Islami Bank 549 992 1541 0.04%EBL 100639 103171 203810 4.73%NCC Bank 55044 45283 100327 2.33%Prime Bank 174384 168532 342916 7.96%Southeast Bank 99509 111537 211046 4.9%Dhaka Bank 71377 76650 148027 3.44%Alarafa Islami Bank 76112 71930 148042 3.44%Social Islami Bank 34975 42712 77687 1.8%Dutch Bangla Bank 83434 108878 192312 4.46%Merchatile Bank 95008 113434 208442 4.84%Standard Bank 45356 48500 93856 2.18%One Bank 53831 57690 53831 1.25%Exim Bank 128446 143314 271760 6.31%Bangladesh Commerce Bank 7389 5426 12815 0.29%Mutual Trust Bank 36945 39426 76371 1.77%Premier Bank 44165 35357 79522 1.85%Bank Asia 99414 106746 206160 4.79%Trust Bank 38429 43138 81567 1.89%Shahjalal Islami Bank 82341 111837 194178 4.51%Jamuna Bank 55907 57705 113612 2.64%Brac Bank 5610 11203 16813 0.39%Total 2099052 2208241 4307293 100%

Source: Computed from Bank and Financial Institution Division, Ministry of Finance, GOB Statistics


c. Bankruptcy of the import firms: If the import firm becomes bankrupt for various reasons, the LC issuing bank has to face enormous problems to recover its outstanding dues. Sometimes, the bank is compelled to sell the imported merchandise under its pledge or any other mortgaged assets to recover the money. This process is also not so easy to handle. These problems affect the bank's financial solvency, if the bank is not careful about maintaining the security aspects of the import loans.

d. Paucity of highly qualified and skilled executives to handle import financing: Many commercial bank branches are not well-equipped with qualified and competent executives capable of dealing in import financing related foreign exchange operations. So, it may not be possible for such bank branches to provide time-befitting and need-based import financing services to their clients. Obviously, such banks loose the opportunity of earning significant amount of revenue from import financing operations in such situations.

Import Financing Problems faced by the import firms:

a. Inadequate fund position: Import firms need to posses sound financial background to handle import trade smoothly. But some firms cannot spend needed fund for this purpose. These firms do not have adequate credit worthiness to attract the commercial banks in lending for import trade. Traditionally, commercial banks come forward to open letter of credit (LC) for the wealthy and large importers where banks do not perceive so much credit risks.

b. Problem of opening letter of credit of large amount: There are someimport-firms associated with bulk import of goods like charter party. Such import transaction calls for opening letter of credit of unusually large amount. Most commercial banks cannot provide such huge amount of L.C. opening facility without syndicate financing. Paucity of foreign exchange/ liquidity problem in banks usually creates such problem.

Problems of Import Financing in Bangladesh:There existsome inhibiting factors of import financing both for the commercial banks and import firms dealing with such banks. These bottlenecks hinder the smooth functioning of the import firms to perform import operations. It is true that many import firms become discouraged in import trade due to these impediments. The problems of import financing in Bangladesh are discussed from the above two perspectives:

Import Financing Problems faced by commercial banks

a. Problem of depositing margin of LC: Commercial banks normally charge high margin for opening letter of credit from the import firms especially when banks are not satisfied with the credit-worthiness after making financial and economic analysis of the clients. The import firms intend to open letter of credit with reasonable margin because they may not possess adequate ready cash to deposit as L.C margin in the bank.

b. Problem of paying fund to the export firm due to breach of commitment: The problem arises when the export firm does not comply with the terms and conditions of letter of credit. In such case, payment of money as per LC commitment becomes different for issuing banks of letter of credit. This often results in litigation problem for the import firm.

Marginof LC

Paucity ofskilled

executives

Inadequatefund position

Problem of openinglarge LC

exportdocumentation

Firms'Bankruptcy

Non co-operationby

commercial banks

Absence ofadvisoryservices

Breach ofcommitment


Improvement of supply position in the foreign exchange market: It is true that paucity of foreign exchange hinders import operations. The imbalance between demand and supply position gives rise to increasing price of foreign exchange making imports relatively more expensive. As such, Bangladesh Bank may come forward to enhance the supply position of different foreign currencies in the foreign exchange market to improve the position.

Margin for opening letter of credit should be rationalized: Presently, importers are found to face discriminatory behavior from the banks as regards to the margin to be deposited for opening letter of credit, which is found to vary from 10 to 100 percent. Bangladesh Bank may prepare a set of well-thought guidelines to overcome this problem of LC margin for the benefit of importers.

Capacity building of banks in the handing of foreign exchange operation including import financing: Foreign exchange operations represent a vital component of bank services. For extending this service efficiently, bank executives must be equipped with modern knowledge, skills and technical know-how by means of offering tailor-made training programs by the authorized foreign exchange dealing banks. This will help in the capacity building of banks in the area of foreign exchange transaction and in avoiding mistakes as far as possible.

Malpractices of banks regarding import financing must be ironed out: It has been found that import firms are to suffer due to various malpractices of the bank officials, willful delay in the opening of letter of credit, use of speed money for processing of import financing application, unreasonable charges from the importers, lack of supportive mentality can be avoided if the bank authority enforces strong code of ethics in dealing with in import financing cases.

Introduction of modern communication and service rendering devices in the foreign exchange department: In various facets of import financing, modern IT devices should be introduced for increasing overall efficiency of the service. Communication of letter of credit to the negotiating banks, negotiation regarding LC conditions, conformation of letter of credit and payment of import bills are the areas where modern IT devices should be employed specially in those banks where there exist room for improvement.

c. Problem of export documentation resulting in bottlenecks in import financing: Import firms are to face problem in the clearance of goods from the Customs & Port Authority, if there exists errors in export documentation. This eventually creates problem in the completion of import transaction through payment to the foreign suppliers by LC opening bank. When the goods are not at the disposal of the bank authority, release of import finance from the bank cannot be ensured.

d. Non co-operation and procrastination in the opening of letter of credit by commercial banks: Reportedly, import firms do not often get proper support from the bank officials regarding the opening of letter of credit despite possessing credit worthiness by the clients. This happens when the bank officials intend to gratify their selfish ends through speed money. This is definitely very undesirable act. The bank officials should also recognize that this may hamper their institutional business reputation in the competitive banking sector.

e. Absence of proper advisory services on import financing: New and experienced import firms are in need of proper advisory services to simplify the processing of import financing. Very few banks usually render such services for the benefit of importers. As a result, such import firms are found to commit various mistakes in complying with documentary formalities for import financing. This causes delay in the opening of letter of credit for import along with their natural consequences.

Some Recommendations for Improving the Effectiveness of Import Financing in Bangladesh:

As a matter of fact, public and private commercial banks in Bangladesh are largely involved in import financing. In view of ever increasing demand for import finance in Bangladesh, the whole process needs to be streamlined. Towards this end, the following recommendations may be worth-mentioning:


Developing hearty banking relationship with foreign banks in important parts of business world: For handling import trade systematically and effectively, there is a need for developing sound relationship with foreign banks which can operate as negotiating banks for the bank issuing letter of credit. This relationship building can facilitate prompt handling of import operations including the payment aspects.

Strict adherence to Bangladesh Bank guidelines in processing import financing: The foreign exchange department of the bank must follow the Bangladesh Bank guidelines strictly to avoid any future problem in the management of import financing. Bank officials dealing in foreign exchange must be thoroughly conversant with these rules and in evaluating application for letter of credit. All points must be examined with utmost care and prudence. This may also help to protect national interest.

Strengthening advisory services by the bank for the new and inexperienced import firms: New and inexperienced import firms experience problems in handing various aspects of import financing. These firms need sound advisory services from banks to handle all technical aspects precisely. Bank officials in the foreign exchange department can work as helping hand to assist these firms. For this purpose, technically sound team must work in the advisory cell of the foreign exchange department of the bank.

Conclusion:Import trade in Bangladesh is essentially bank financed business operations. This type of bank financing is extended to the import firms through the instrument of letter of credit, which reduces the foreign suppliers' business risk because of the financial guarantee of the importers bank for paying import duties on fulfillment of certain conditions as laid down in the letter of credit. Although banks have different forms of import financing programs, many small and financially unsound import firms cannot reap the benefits of such credit programs. The efficiency and timely conduct of import operations in Bangladesh depend largely on the availability of import financing on easy terms and conditions.

Since Bangladesh has to rely heavily on import trade for meeting her deficiency in essential food items, various types of raw materials, machineries and accessories for industrialization and other logistic items for developing infrastructure, the issue of import financing should receive maximum attention of the national policy makers in the banking sector. If the present impediments in the flow of import financing can be overcome, the cherished goal of Bangladesh for achieving more than 7 percent growth rate in GDP may hopefully be materialized through the joint efforts of public and private sectors.

References:

Rathor B.S. and Rathor J. S., (2005) "Export Marketing", Himalay Publishing House, Delhi, 3rd Edition, p-631

Daniels J.D., Radebaugh L.E. and Sullivan D.J. (2009), "International Business: Environments and Operations", Pearsons International Edition, 12th Edition, p-543.

Goldsmith H. R.(1980) "Import/Export: A Guide to Growth, Profits and Market Share", Prentice Hall, Englewood Chiffs, New Jersy, USA, p-135

Das U.C., Mazumder M.A, Rahman M.M. and Islam S.M.M. (2006), "Export Import Management", CBO Publication (Pvt) Ltd, Dhaka, 2nd Edition, pp-486-487.

Khan A.R. (2009) "Bank Management: A Fund Emphasis", Brothers Publications, Dhaka, 1st Edition, p-170.

Ministry of Finance, Government of Bangladesh, "Bank- Insurance and Financial Institutions Operations: 2011-2012".

Statistical Publication, Bangladesh Bank, Dhaka.

"The role of the CEO is to enable people to excel, help them discover their own wisdom, engage themselves entirely in their work, and accept responsibility for making change."- Vineet Nayar


Abstract

Most of the investors all over the world use CAPM to measure the expected stock returns for its simplicity and accuracy. Investors in Chittagong Stock Exchange (CSE) also use it extensively. This study aims to find the applicability of CAPM in CSE. Closing prices of top 30 different companies from 2008 to 2012 have been considered. The basic model developed by William Sharpe (1964) and other authors in different times is used to serve the purpose. The research finds no applicability of CAPM in CSE as the difference between expectations and the actual results is very high at normal risk level.

Keywords: CAPM, Beta, Returns.

Empirical Evidences from Chittagong Stock Exchange

Mohammed Rafiqul Alam FCMAChief Audit Officer under Chittagong Port Authority

Emon Kalyan ChowdhuryAssistant ProfessorDepartment of Accounting,Faculty of Business Studies under Premier University, Bangladesh

Tasnim Uddin ChowdhuryLecturerDepartment of Finance,Faculty of Business Studies under Premier University, Bangladesh

Application ofCapital Asset Pricing Model


Test of CAPM in Different Countries:The model is based on some simplifying assumptions including - all investors are risk-averse and price takers and have homogenous expectations about asset returns, they may borrow or lend unlimited amounts at the risk-free rate from a fixed quantity of assets where all assets are marketable and perfectly divisible, the asset markets are frictionless and perfect (there are no taxes, regulations, or restrictions on other selling) and all the information is costless, symmetric and available to the investors. However, many investors and financial analysts were interested on applicability of this model in different capital markets of the world. Consequently, it has been applied in many recent studies, including: Lahore Stock Exchange (Iqbal and Brooks, 2006); Australia Stock Exchange (Galagedera,2006); Latin American Stock Exchange (Grandes, Panigo and Pasquini, 2006); Spanish Stock Market (Ferruz et al., 2007); Oslo Stock Exchange (Qin and Poyry, 2007); Iceland Stock Exchange exchange (Senol and Ozturan, 2008); Shanghai Stock Exchange (Xu song and Cheng-qi, 2008); Sao Paolo Stock Exchange (Rogers and Securato, 2009); Vietnam Stock Exchange (My and Truong, 2011); Taiwan Stock Exchange (Lin and Liang, 2011) and Indian Stock market (Gunasekaran and Ramaswami, 2011). But, studies related to Bangladesh stock market and CAPM were few. The CAPM is questioned by several empirical studies as the variables other than the estimated covariance can be used to explain the risk premium of the individual assets. Ross (1978) found that, the expected return can be explained by variables like- the firm size, the own variance and the month of January. Black et al. (1972), Fama and MacBeth (1973) were supportive to the implications of the CAPM. They all agreed that, the average return of low beta stocks was lower than the average high beta stocks. They found a roughly linear relationship and a slope that was too flat to strongly support the CAPM (Campbell, 2000).On the other hand, there are several extensions to the model which has been tested. Some of that models are- the after tax CAPM, Conditional Capital Asset Pricing Model (CCAPM), the International Asset Pricing Model (IAPM) and the international CAPM. In early twenty first century Ocampo (2003) applied an alternative method to test the CAPM that helped to explain the role of beta in estimating returns in the Philippine markets. At present, researchers concentrate on

Background:Capital Asset Pricing Model (CAPM) has been accepted as a simple and widely used theory of asset pricing for more than 40 years. This model was originally proposed by Sharpe (1964) to explain how the weighing of risk and expected return helps to determine securities prices. This theory is widely applied today in the finance literature and influencing the decisions of government agencies, bankers, brokers, and millions of investors worldwide. A review of studies supports the validity of CAPM for various capital markets in the world. But, studies on stock market and CAPM were few in Bangladesh. As the capital market of Bangladesh is a developing one, that's why we may find a suspicious result If the western theories are applied here. This paper attempts to examine the validity of the CAPM in CSE- one of the stock exchanges in Bangladesh.

Expansion of CAPM:Several scholars including Eugene Fama, Michael Jensen, John Lintner, John Long, Robert Merton, Myron Scholes, William Shaepe, Jack Treynor and Fischer Black have contributed to develop a model which will describe the pricing of capital assets under condition of market equilibrium. Treynor and Sharpe (1964) worked independently to develop the Capital Asset Pricing Model (CAPM) while Lintner (1965) and Mossin (1966) extended and clarified it further, which marks the birth of asset pricing. In 1952, Markowitz focused on how investors use risk and return assessments in forming mean-variance efficient portfolios. In his paper, he emphasized on diversification that is required to obtain the optimal trade-off between risk and return. Sharpe (1964) worked on that effort and developed a model which explains how markets incorporate risk in pricing capital assets. Later, Fama (1968) clarified that their models were, in fact, equivalent. The equation they derived has later been named as the Capital Asset Pricing Model (CAPM). Before the CAPM is introduced, there were no asset pricing models that gives clear testable predictions about the tradeoff between risk and return. By Fama and French (2003), the attraction of the CAPM is its powerful simple logic and intuitive predictions about how to measure the relation between expected return and risk. After about four decades, the CAPM is still widely applied to determine the cost of equity capital for firms and to evaluate the performance of managed portfolio (Burton, 1998; Fama and French, 2003).


methods of analysis to optimize the portfolios as the market significantly rewards market risks. Investment in stock market is always risky as the market is seriously volatile. Since the risk is high, the return is also high in this sector. There is a positive relationship between the risk and the return. More the risk, higher the return. In order to reduce the risk level of investment, an investor can diversify the risk of its investment by investing in different assets. Every investor expects return which compensates risk. The Capital Asset Pricing Model (CAPM) helps us to determine the risk and return of a particular investment.

Jalilian (2011) studied the relationship between company size and systematic risk based on the CAPM on accepted companies in Tehran stock. Their study included 112 Tehran companies in stock market. The study covered the period of five years. The results revealed was a significant relationship between company size and systematic risk based on the CAPM in accepted companies in Tehran stock markets.

Gorjizadeh (2010) studied the relationship between benefit growth and systematic risk of accepted companies in Tehran stock market. He proposed three hypotheses and chose 114 firms from accepted companies in Tehran stock markets for the period of six year from 2001 to 2007. He calculated the variables of margin, gross growth, operating benefit growth, net profit growth, and systematic risk. The results revealed that there was a significant relationship between systematic risk and benefit increase of accepted companies in Tehran stock markets.

Masihe et al. (2010) estimated systematic risk in different periods and utilized wavelet method in newly established Persian Gulf stock markets. Seven Persian Gulf stock markets were analyzed from 2007 to 2008. The result of the study showed that there was a significant difference in beta average coefficient in countries member in GCC. This issue was in accordance to various theoretical expectations of stock market investors in different periods. This difference was the result of various business strategies.

Alan and Bojang (2009) investigated the beta stability as systematic beta index using CAPM. Their study included 50 Malaysian companies stock. The study covered the period of seven years from January 1994 to December 2001. The result indicated that two models of Fama and CAPM explain negative and positive increase of financial resources and occasionally revenue. However, the results of these models are dramatically different.

different time scale to see the applicability of the CAPM. The studies on different markets of the world show a positive relationship between the return on a stock and its associated beta with the increase in the time scale. Based on different time scales Rhaiem et al. (2007) studied the estimation process of CAPM for French's stock market and finally concluded that, in a multi-scale framework the CAPM is more relevant at a medium term horizon. A further research done by Rhaiem et al. (2007), established that, as compared to other time horizons CAPM is more relevant at short and long time horizon in a multi-scale framework. A test by Gursoy and Rejepova on Turkey market found no meaningful relationship between ex-post risk premium and beta coefficients under the Fama and MacBeth (1973). But with the Pettengill et al. (1995), they found strong beta-risk premium relationships.

Literature Review:Investors take their decisions based on the relationship between risk and return of investment (Kevin, 2001). Returns depend upon the degree of risk and investors can reduce the variability through the diversification of the investments. This nature of investors gives birth of portfolio from a particular set of securities or assets. Among the portfolios, all are not efficient at a time. So, investor needs to choose the efficient securities from the portfolio to maximize profit as well as to reduce risk. The capital asset pricing model was conceptualized by William Sharpe in 1964 and John Lintner in 1965. This theory later on gave birth of asset pricing theory. William Sharpe won Nobel Prize in 1990 for inventing CAPM. Decades later, the CAPM has extensive applicability in estimating cost of capital and evaluating the performance for managed portfolios (Fama & French, 2004). Diversification helps to reduce risk, but the portion of risk can never be pulled down to zero (Kevin, 2001). Not all stocks are diversifiable, few are subject to systematic risks which can never be diversified by any decisions, this risk is called beta risk. A rational investor expects the return on a security to be commensurate with the risk of that stock. Therefore, a standard Capital Asset Pricing Model (CAPM) indicates the relationship between systemic risk and expected return of a security (Lintner, 1965; Mossin, 1966; Kerr, 1997; Elton et al., 2007). Wonyi et.el (2012) found positive relationship between risk and return in Nigerian stock market and they recommended that to manage the risks investors should improve the


comparison to the well equipped developed markets. However, as we hardly find empirical studies conducted on emerging markets, this study has implications for the participants and regulators.

Firstly, "beta is not dead and multifactor variables determine the stock return" the researchers could use this study as a benchmark for further research, Secondly, this study will obviously be used as a source of reference for further research and the researchers will get proper guideline from this study, Thirdly, this study will help all the interested parties of the market such as investors, policy making and regulatory bodies and portfolio analysts of the emerging markets by providing some directions. Hence, it is an important issue to concentrate on the legal aspects of the emerging markets regarding information disclosure requirements, protection of outside investor's interests. As the Dhaka Stock Exchange (DSE) is a member of one of the emerging market and as thin market, DSE seems a risky financial market. So the risk related to variables affecting returns would be effective and significant. For determining the stock return, the results of the empirical study strongly supports the relationship among the different variables used. It is evidenced that, except beta there may be other important variables that can be used to get the stock return. The results give a negative correlation between stock return and the beta due to market inefficiency which is beyond the assumption of the CAPM model.

Objectives of the Study:The objective of this study is to examine the applicability of CAPM in Chittagong Stock Exchange. It will also check the relationship between risk and return in the same.

Methodology: To test the applicability of CAPM in the CSE, daily adjusted close prices of 30 best performing companies have been chosen for the period from January 1, 2008 to December 31, 2012. The Risk Free Return and the Market Return have been collected from the website of Stock Bangladesh Limited. CAPM formula has been used to know the beta of stocks for stipulated period. After getting the beta values, estimated prices have been generated applying the beta for the same period. Six Portfolios have been created taking five companies in each. For every portfolio both actual and expected values have been used to find out

Vaez et al. (2008) investigated the possibility of predicting stocks price in Tehran stock markets using CAPM. The researcher selected companies non-metal mineral industries, brokers and car industries. These companies were active from 1999 to 2003. The results disclosed that the impact of stock value is associated with stock intrinsic value, which was impractical during the study period.

Chariton and Constantinidis (2004) studied the size and factors like book-to-market in earnings. Their results indicated that if the market factor alone used in the capital asset pricing model, R2 of the model would be between 60 to 93 percent, added the company's size and BE / ME factors, R2 will be 84 to 97 percent, which means that multi-factor model is better than the single-factor model.

Ahmadpour (2000) studied the Tehran markets to get the effects of financial leverage, operating leverage and company size on systematic risk of listed companies. The results revealed that there was a significant relationship between financial leverage, company size and systematic risk. However, no significant relationships between operating leverage, sale and systematic risk were found.

Rahman, et al. (2006), found strong support to explain the relationship among the variables for determining the stock return shown that beta is not the only factor to determine the stock return but there are other variables which can be considered significantly important. In this research they found the impact of time and as they see that variability in time may cause the stock return to vary and with the time factor all variables become significant so, not only the variables like- beta, size and book to market value but also the time impact is significantly important. This study on the CAPM is also done on that ground which shows that, stock return is significantly related to the variables we have considered. We also found that, in Bangladesh capital market time impact and year impact plays a significant role which can be seen as a new issue for CAPM.

Baten et el. (2006), identifies market inefficiency as the major drawbacks for Bangladesh capital market where information transparency and the regulatory system is not certainly proficient. As a result investors get poor confidence and insufficient basis to analyze the market without understanding. The DSE is a newly established emerging market, the regularity system and the trading mechanism are not operating smoothly in


Empirical Findings:

The above table shows the descriptive statistics of returns on 30 stocks. Skewness shows very few stocks have symmetrical returns while most of the stocks have asymmetrical returns and it is also evident in kurtosis. However, we can conclude from this analysis that stock market is truly volatile and stock returns are not good indicator as useful tool for forecasting.

Now, first step is to estimate beta coefficient for each stock using their monthly returns. The beta is estimated by regressing each stock's monthly return against market return (collected from stockbangladesh.com). Total 30 company's stocks are divided into 6 portfolio consisting with 5 each. Using the above mentioned equation, the returns of different portfolios have been calculated. Based on the generated betas, we estimated future stock prices of all portfolios. We also have tested normality of data by using ADF unit root test. Finally we examined whether the actual returns and expected returns are valued in relation to the systematic risk and found the following results for each portfolios;

the relationship between the variables and other statistical relationship between and among the variables.

Hypothesis:Ho: Stock return does not depend on degree of riskH1: Stock return and risk are correlated

Justification of the Model: Capital Asset Pricing Model calculates the total return comprising risk free return and the risk premium. Risk premium depends on the degree of risk taken (beta coefficient). The relation between risk and the return is linear and correlated. Higher the risk, higher the return as risk free return is constant. CAPM equation is based on the assumptions of several factors like investors are risk-averse, market is frictionless, information are available but asymmetric in nature, investors can borrow unlimited amount at risk free rate and financial assets are perfectly divisible and have marketability (Copeland et al., 2004)The CAPM equation is as follows;

Where,

This study based on the data of CSE-30 index from January 2008 to December 2012. The procedure is followed as already mentioned in the methodology.

E(R i ) = rf + i E(R m - rf )

R i = Return on asset I

rf = Risk free rate

R m = Return on the market portfoilo

= Beta coefficient

Beta coefficient is determined by;

cov RixRm

var (Rm))

Stock ME MED SD KU SK MIN MAXABBANK 988.63 897.30 846.39 3.48 1.69 0.004349.00

RECKITTBEN 874.56 817.00 415.50-0.29 0.71325.201940.00

AFTABAUTO 670.95 372.50 697.28 0.74 1.43 0.002954.50

APEXTANRY 992.481124.00 571.22-0.84-0.35 0.002331.00

PHOENIXFIN 746.49 514.80 591.34-0.04 0.80 0.002522.50

BEXIMCO 198.38 190.20 110.18-1.29 0.10 34.70 467.20

BXPHARMA 118.74 118.50 41.80-1.38-0.13 48.50 196.50

BRACBANK 568.65 594.30 351.22 0.01 0.10 0.001595.80

CONFIDENCEM597.30 339.80 668.13 3.22 1.90 78.303431.50

DHAKABANK 254.76 313.00 207.16-1.45 0.19 0.00 711.80

MTB 317.89 346.00 183.47-0.57-0.26 0.00 811.80

FAREASTLIF 1678.892270.001404.53-1.53 0.15100.404770.50

GQBALLPEN 184.68 178.00 52.67-0.50-0.04 0.00 301.50

HEIDELBCEM 1769.261451.301148.17-1.17 0.19 0.004267.50

ISLAMIBANK 1569.66 550.802402.29 0.86 1.64 0.007917.50

JAMUNAOIL 74.30 71.80 25.61-0.13 0.48 28.20 162.10

KEYACOSET 231.08 200.20 133.55-0.34 0.79 0.00 548.20

LANKABAFIN 922.08 751.90 418.61 0.00 0.72187.102173.50

PADMAOIL 271.88 299.80 150.01-0.37-0.42 0.00 668.80

MERCANBANK 254.76 325.80 201.10-1.40 0.07 0.00 704.50

NCCBANK 369.19 445.00 284.97-1.34 0.05 0.00 994.30

PRIMEBANK 363.89 386.50 315.53-1.23 0.40 0.00 999.00

PUBALIBANK 2619.772100.002069.59 0.27 0.97 0.008331.30

SINGERBD 2714.933091.501426.05-0.40-0.76 0.005519.00

SQURPHARMA 128.76 118.40 34.34 2.46 1.75 86.00 253.40

SQUARETEXT 497.10 523.00 292.16-0.69-0.25 0.001103.00

CITYBANK 607.51 581.30 548.03-1.55 0.34 0.001674.30

SUMITPOWER 1335.061116.001363.23 0.66 1.08 32.705831.00

UTTARABANK 808.16 675.00 866.75 2.21 1.69 72.003944.30

UTTARAFIN 1335.061116.001363.23 0.66 1.08 32.705831.00

Table: 1


From the above results it is very evident that the differences between expectations and the reality are very high. At all types of portfolios, the applicability of CAPM is absent. Out of 6 portfolios in 5 years, total 14 packages are overvalued and 16 are undervalued. The beta values are also ranging from extreme to normal. However, CAPM gives different results in most of the cases. Results of this research support many literatures conducted in the earlier section. Therefore, we conclude that CAPM has no applicability in the Chittagong Stock Exchange and the null hypothesis may be rejected. The results generated by using CAPM model may mislead the investors in pricing the underlying securities in CSE.

Conclusion: The purpose of this research is to test the applicability of CAPM in Chittagong Stock Exchange. Closing returns of top 30 companies for 5 years have been considered and it is found that the difference between expectation and actual return is very significant at normal risk level. So, any result may mislead the investors to forecast future movement of stocks. The intensity of differences implies that CAPM has no applicability in CSE.

Table: 2

Year Beta Actual Expected DifferenceOver/Under Return Return Valued (CAPM)

2008 1.012353 6.297899 6.234916 -0.06298 Under

2009 1.076189 6.693074 6.31291 -0.38016 Under

2010 1.019672 6.343975 6.244303 -0.09967 Under

2011 0.689956 4.290933 5.841422 1.550489 Over

2012 0.830168 5.164202 6.012773 0.848571 Over

Portfolio 1

Table: 3


2008 1.028067 6.39521 6.25437 -0.14084 Under

2009 1.033361 6.429098 6.260984 -0.16811 Under

2010 1.00959 6.18123 6.212377 0.031148 Over

2011 0.6816 5.819422 6.141378 0.321956 Over

2012 0.839565 5.970696 6.170913 0.200217 Over

Portfolio 2

Table: 4


2008 1.02105 6.152605 6.206975 0.05437 Over

2009 1.076598 6.448525 6.264877 -0.18365 Under

2010 1.001598 6.25209 6.226557 -0.02553 Under

2011 0.652711 5.125022 6.005378 0.880356 Over

2012 0.869505 4.512568 5.884865 1.372297 Over

Portfolio 3

Table: 5


2008 1.020798 6.242941 6.224496 -0.01845 Under

2009 1.07541 6.528033 6.280492 -0.24754 Under

2010 0.998443 6.220656 6.220451 -0.0002 Under

2011 0.643822 5.688844 6.115867 0.427022 Over

2012 0.877383 5.731916 6.124065 0.39215 Over

Portfolio 4

Table: 6


2008 1.02437 6.098824 0.980378 -5.11845 Under

2009 1.073484 6.462172 1.038975 -5.4232 Under

2010 0.988648 6.071885 0.976189 -5.0957 Under

2011 0.6292 5.666222 0.9108 -4.75542 Under

2012 0.897707 5.629024 0.904829 -4.7242 Under

Portfolio 5

Table: 7


2008 1.025294 6.186597 6.213697 0.027101 Over

2009 1.06582 6.402787 6.255697 -0.14709 Under

2010 0.984631 6.04959 6.186189 0.136598 Over

2011 0.581333 5.710356 6.120311 0.409956 Over

2012 0.957347 6.108622 6.197857 0.089235 Over

Portfolio 6

........it is found that the difference between expectation and actual return is very significant at normal risk level. So, any result may mislead the investors to forecast future movement of stocks. The intensity of differences implies that CAPM has no applicability in CSE.


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Abstract

Enacting a Financial Reporting Act in Bangladesh to ensure accountability and transparency in financial reporting and to safeguard the investors from taking faulty decisions based on misguided information published in general purpose financial statements is a long cherished desire from every stakeholders in the society. Globally it is believed and proved that a high level independent oversight body will work as an effective intervention to reduce the expectations gap that exists between the expectations of the society from auditorsand auditors' actual performance. 'Who will audit the auditors?' - becomes a valid question in marketplace after the observance of global financial crisis in 2002 where auditors are held guilty for professional misconduct. This paper theoretically explores the background of Financial Reporting Act in Bangladesh as a response to global changes to accounting and reporting environment.

Keywords: Expectations gap, financial reporting act, financial reporting council, Bangladesh.

Present

Performance

Public

Perce

ptions o

f

Perform

ance

Expe

ctat

ions

Gap

Nikhil Chandra Shil FCMAan Assistant Professor,Department of Business Administration,East West University, Dhaka, Bangladesh.

Expectations Gap andPre-Financial Reporting Act Regime


reflects a true picture of accounting and auditing environment in Bangladesh. As reported in the study, a second audit of 13 companies by Securities and Exchange Commission of Bangladesh discovered various infractions in the annual financial statements though all of the companies have received unqualified audit opinion initially. Due to these types of inefficiencies, the World Bank team has offered a major recommendation to establish an independent oversight body - Financial Reporting Council, in the report. The regulatory efforts undertaken by the Government of Bangladesh during different times is a continuation of this recommendation. This paper puts light on this issue by bringing international achievements on this area across different countries.

Expectations Gap:The audit expectation gap is arguably one of the major issues confronting the profession in auditing industry over the recent years. This pressing issue has been in existence way back to 70s' which was highlighted by Liggio (1974). Researchers have concluded that the audit expectations gap is an issue that remains as relevant today as ever. Expectations gap has been in the limelight over the last decade in view of the well-publicised corporate scandals in US particularly Enron Corporation and WorldCom. The credibility of auditor reports was questioned and thus the confidence of public to rely on the audited financial report was badly eroded.

In 1974, the AICPA set up the Cohen Commission to study "whether a gap exists between what the public expects or needs and what auditors can and should reasonably expect to accomplish?" The commission confirmed the existence of expectations gap in the United States in their report in 1978.

The US National Commission on Fraudulent Financial Reporting (the Treadway Commission) issued a report in October 1987 which concluded that it is still crucial for auditor to detect and deter fraudulent financial reporting although the auditor's role in relation to fraud and other irregularities is secondary to that of management and the board of directors.

In 1988, the Canadian Institute of Chartered Accountants (CICA) sponsored another study on the Public's Expectations of Audit (the MacDonald Report). The Commission developed a detailed audit expectation gap model that analyzed the

Introduction:Stock market is usually considered to be a leading indicator of economic change and a well performing stock market reflects the existence of disciplined financial accounting and reporting system in a country via the highest level of confidence of investors on the country's accounting and reporting system. However, stock market investors demonstrate their concerns on accounting and reporting system of Bangladesh and demand financial reporting act in different instances in different time (businessnews-bd.com, June10, 2014). Most of the time, financial statements users consider an auditors' report to be a clean bill of health. Thus, most users' expectations towards auditors are far more than what it should be. Expectations gap occurs when there are differences between what the public expects from the auditor and what the auditor actually provides.

The research about the audit expectations gap has been extensively conducted worldwide. The term "audit expectations gap" emerged during the 1970s in the United States when the American Institute of Certified Public Accountants (AICPA) set up the Commissions on Auditors' Responsibilities (Cohen Commission) to consider "whether a gap exists between what the public expects or needs and what auditors can and should reasonably expect to accomplish" in 1974. The Cohen Commission, which reported in 1978, confirmed the existence of an expectations gap. Following that, more researches have been done all over the world with the same outcome which agreed with the existence of expectation gap. Among those studies are Gay et al. (1997) in Australia; Innes et al. (1997) in the UK; H?jskov (1998) in Denmark; Frank et al. (2001) in the US and Best et al. (2001) in Singapore. A significant expectations gap exists in Australia (Gay et al., 1997); a gap exists between auditors and users (Innes et al., 1997); investors' responses indicated significantly higher expectations than auditors had (Butler et al., 2000) and Best et al. (2001) found an expectations gap which was quite wide particularly in relation to the level and nature of auditor's responsibilities. And gradually these gaps are increasing due to increasing level of expectations without any meaningful change in auditors' roles and responsibilities.

Bangladesh is not an exception to the findings as revealed in the above studies. The World Bank Report on the Observance of Standards and Codes (ROSC) as published on May 16, 2003


Causes of the Audit Expectations Gap:Audit expectations gap sometimes logically comes from the over-expectations of the users in many forms. Users appear to have "unreasonable expectations" of the auditor's responsibilities (Gay et al., 1997) that led to the emergence of audit expectations gap. It is not the responsibility of the auditor to prepare the financial statements of an entity, the subjects held the management to be responsible in producing the financial statements (Gay et al., 1998; Innes et al., 1997 and Best et al., 2001). More often than not, users held the auditors to be responsible in fraud prevention and detection (Gay et al., 1998; Frank et al., 2001; Best et al., 2001). In addition, users placed responsibilities in auditor for maintenance of accounting records (Best et al., 2001). Users' perceptions according to those findings agreed that users placed greater expectation on auditors than what is expressed in the auditing standards, particularly ISA 240, entitled "Auditors Responsibilities Relating to Fraud in an Audit of Financial Statements". It is clearly indicated that users are more concerned on this and put extra responsibility onto the shoulders of auditor to prevent and detect fraud and error. Other auditor's responsibilities received less extent of expectation from users compared to prevention and detection of fraud and error. This concern actually redefined the auditors' responsibilities in recent days. And different loopholes in preparing accounts, setting accounting and auditing standards, auditing process, oversight functions, client-auditors relationships come out which receive extra attention.

While reviewing the contributory factors that caused audit expectations gap (Lee and Azham, 2008), it was found to be due to: the complicated nature of the audit function, auditor's conflicting roles, retrospective and subjective evaluation of auditor's performance, time-lag in the accounting profession responding to changing and expectations of users (Humphrey et al., 1992a, 1993) and the self- regulation process of the auditing profession. A self-regulatory framework creates professional monopoly which likely compromises the audit quality at client's expense and tolerates the deficient performance of auditors (Humphrey et al.,

individual components of the expectations gap into three main categories, reasonableness gap, deficient standards gap, and deficient performance gap as given in Figure 1.

Reasonableness gap is the gap between what the society expects auditors to achieve and what they can reasonably be expected to accomplish. Such a gap exists because of misunderstanding of users, users' over expectations, uneducated users, miscommunication of users, and miss-interpretation of users and unawareness of users from the audit practice limitations. Deficient standards gap is the gap between the duties, which can reasonably be expected of auditors, and auditors existing duties as defined by law and professional promulgations. Kinney (1993) states that one of the major causes of the profession's expectation gap is the difference between what the standards of the profession provide and what users might desire. And finally, deficient performance gap is the gap between the expected standard of performance of auditors' existing duties, and performance as expected and perceived by society (Porter et al., 2003). Such a gap also confirmed by scholars and researchers in a lot of countries. The main reasons of such a gap may be classified as follows: Non-audit services practicing by auditors, self-interesting auditors and economical relationship with clients, unqualified auditors, and dependent auditors.

In the UK, the Financial Aspects of Corporate Governance (the Cadbury Committee) released another consistent investigative report on auditor's responsibilities for fraud and other irregularities in 1992. The most radical in this report is, it proposed legislation for extending statutory protection to all auditors who report reasonable suspicion of fraud to investigative authorities.

Figure 1: Components of the Audit Expectations Gap (Adapted from MacDonald Commission, 1988).

Standards Gap

ExpectationsUnreasonable

ExpectationsReasonable

ActualPerformance

Shortfall

Performance

Performance Gap

Shortfallperceived

A

But notReal

EDCB

Professional Improvement Needed

Better Communication Needed

PublicExpectations

of Audit

PresentStandards

PresentPerformance

PublicPerceptions ofPerformance


Reporting Act in Bangladesh bringing some comparative experiences from a global platform.

Independent Public Oversight:Post-SOX period brings a dramatic change in oversight function. Failure of Securities and Exchange Commission for ensuring effective oversight, a new regulatory framework has been developed so that the users can take informed decision based on accurate information. This section provides some examples of such regulatory initiatives.

Public Company Accounting Oversight Board (PCAOB),United States:The PCAOB is a private-sector, nonprofit corporation created by the Sarbanes-Oxley Act of 2002 to oversee the audits of public companies and other issuers in order to protect the interests of investors and further the public interest in the preparation of informative, accurate and independent audit reports. Since 2010, the PCAOB also oversees the audits of broker-dealers, including compliance reports filed

The above discussions give a testimony that has brought revolution in the structure of centuries old accounting and auditing profession. The catastrophic disaster that has turned the attention of world community is the failure of Enron and others causing global financial crisis. The Enron and Arthur Andersen failures in late 2001 and early 2002, respectively, led to the enactment of the Sarbanes-Oxley Act (SOX) in July 2002. Audit firms now claim that they have become much more conservative with respect to client retention and acceptance decisions because the risks associated with auditing increased significantly as a result of the SOX (Rama & Read, 2006). For example, the act greatly altered the regulatory regime of auditing by shifting the oversight of audit firms from the private-sector American Institute of Certified Public Accountants to the quasi-governmental Public Company Accounting Oversight Board. Also, insurance and other liability-related costs increased significantly in the post-SOX period. For these reasons, it is expected that auditors have changed their views on issuing audit opinions since the enactment of the SOX. Bangladesh is also in the process of enacting a similar act titled 'Financial Reporting Act'. The next section presents a comparative study of Financial

lNon- audit service practicing byauditorslSelf-interest and economical benefitsof auditorslUnqualified auditorlDependent auditorlMiscommunication of auditors

lLack of sufficient standardslExisting insufficient standardsregardingauditorresponsibilitiesfordetection of fraudand illegal acts

lMisunderstanding of userslOver expectations of users toauditorperformanceslMisinterpretation of userslUnawareness users of auditresponsibilitiesand limitationslUsers' over expectation of standards

Reasonableexpectation of

auditor performance

Reasonableexpectation of

standard Over-expectationof audit performance

Over-expectationof standards

Miscommunicationof users

Performance gap Standard gap Reasonableness gap

Reasons of Audit Expectation Gap

Unreasonable expectations

Perceived performance Society's expectation of auditorsGap

Figure 2: Reasons of audit expectation gap (adapted from Salehi, 2007)

1992b; Brown, 1962; Shaked and Sutton, 1982; Porter, 1993; Lee et al., 2007). It is believed that the process of self-regulation and its attendant factors enlarge the expectation gap (Gloeck and Jappar, 1993). Also, the ignorance, naivety and misconception of the public in terms of the nature, purpose and capacities of an audit have caused unreasonable expectations (such as the expectations by users for the detection and disclosure of illegal acts by company officials, guarantee that financial statements are accurate, verify every transaction of audit company, examine and report on the efficiency and effectiveness of company's management and administration, etc) imposed on the auditors (Humphrey et al., 1993, Porter, 1993, Frank et al., 2001).Also, expectation gap have been attributed to users' confusion, widespread misunderstanding, ignorance and/or lack of education and communication gap (Fadzly and Ahmad, 2004). Salehi (2007) has identified couple of reasons in audit expectation gap which is given in Figure 2 below:


office holders of an accountancy or actuarial body; and

Further, an office holder of an accountancy or actuarial body is not eligible for appointment as a director.

Members of the Disciplinary and Appeals Tribunals are drawn from a panel maintained by a 'convener' - a senior individual independent of the investigation process. The panel includes accountants, lawyers and other suitable lay persons (who are neither accountant nor lawyers). Tribunals will always be chaired by a lawyer , and either (a) two other members - a lay person and an accountant or (b) four other members - either one lay person, one lawyer and two accountants or two lay persons and two accountants.

Financial Reporting Act (FRA),New Zealand:As per FRA 1993, an External Reporting Board consists of no fewer than 4 and not more than 9 members. However, a person is qualified for appointment as a board member by reason of his or her knowledge of, or experience in, business, accounting, auditing, finance, economics, or law.

Financial Reporting Council (FRC), Nigeria:On 18 May 2011 the Senate passed the Financial Reporting Council of Nigeria Bill, which repealed the Nigerian Accounting Standards Board Act and replaced it with a new set of rules. The FRC is a unified independent regulatory body for accounting, auditing, actuarial, valuation and corporate governance. The membership of FRC in Nigeria includes: Central Bank of Nigeria, Corporate Affairs Commission, Federal Inland Revenue Service, Federal Ministry of Commerce, Federal Ministry of Finance, Auditor-General for the Federation, Accountant-General of the Federation, Securities and Exchange Commission, Nigerian Accounting Association, Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture, Nigeria Deposit Insurance Corporation, and Institute of Chartered Accountants of Nigeria.

pursuant to federal securities laws, to promote investor protection. All PCAOB rules and standards must be approved by the U.S. Securities and Exchange Commission (SEC). The Board is funded principally by fees from public companies. The cost of processing and reviewing public accounting firm registration applications is recovered from registration fees paid by those firms.The PCAOB has four primary responsibilities:

a) registration of accounting firms (including non-US firms) that audit public companies (including non-US issuers) trading in US securities markets;

b) inspections of registered public accounting firms;

c) establishment of auditing and related attestation, quality control, ethics, and independence standards for registered public accounting firms; and

d) investigation and discipline of registered public accounting firms and their associated persons for violations of specified laws or professional standards.

Financial Reporting Council (FRC), United Kingdom:The FRC is the UK's regulator for the accounting, audit and actuarial professions and is also responsible for corporate governance in the UK.The FRC Board is responsible for the overall governance and strategy of the FRC and ultimately approves all codes and standards issued by the FRC. The chair and deputy chair are appointed by the Secretary of State for Business, Innovation and Skills. Other Board members are appointed by the Board. The Board is supported by three governance committees (the Audit, Remuneration and Nominations Committees) and by the Executive Committee, the Conduct Committee and the Codes and Standards Committee. The FRC sets the operational standards for auditors. No FRC member is a practicing auditor. The majority of FRC Board members must not be individuals who in the five years prior to appointment have

l Been practicing auditors, accountancy or actuaries; or

l Held voting rights in an audit, accountancy or actuarial firms; or

l Been employees of an audit, accountancy or actuarial firm, members of the administrative or management body of an audit, accountancy or actuarial firm or


g) Audit regulators should as a minimum, conduct recurring inspections of audit firms undertaking audits of public interest entities

h) Audit regulators should have mechanism for reporting inspections findings to the audit firm and ensuring remediation of findings with the audit firm.

Lot of other countries is in the process of formulating regulatory framework following these countries. Deloitte, one of the big four (KPMG, Arthur Anderson, PriceWaterhouse and Coopers - PWC, Deloitte) accounting and consultancy firm around the world, in an assignment of Hong Kong to study the gap analysis, has revealed the world practices relating to financial reporting council which is presented here in a summary version. In the executive summary of the report, two points are presented here that is very much related to our topic of interest:

a) The EU requirement that the system of public oversight shall be mainly governed by non-practitioners; and

b) No practitioner could be involved in the governance of the oversight system.

Deloitte also confirms the requirement of IFIAR requirement of membership which is read as follow:

IFIAR is the organization for independent audit regulators. Membership of IFIAR requires subscription to the IFIAR Charter (revised in 2013), which requires that members must be independent of the profession and engage in audit regulatory functions in the public interest.

Based on the recommendation of Deloitte, the FRC of Hong Kong comprises the members in accordance with the requirements of the Financial Reporting Council Ordinance, a majority of whom, including the Chairman, are lay members. The discussions above present a rich background of financial reporting act which may be used by other regulators who are in the process of formulating similar regulations.

Financial Reporting Act (FRA), Bangladesh:Though the regulatory initiative visibly starts from 2008 while caretaker government was in power, the need for a high power independent oversight body was felt long before in Bangladesh. In 1997, the then Prime Minister of Bangladesh, while addressing the audiences in South Asian

Financial Reporting Council (FRC), Australia:The Financial Reporting Council (FRC) is responsible for overseeing the effectiveness of the financial reporting framework in Australia. Its key functions include the oversight of the accounting and auditing standards setting processes for the public and private sectors, providing strategic advice in relation to the quality of audits conducted by Australian auditors, and advising the Minister on these and related matters to the extent that they affect the financial reporting framework in Australia. Under section 235A of the ASIC Act, members of the FRC are appointed by the Treasurer and hold office on terms and conditions determined by the Treasurer. The FRC includes members appointed from nominations put forward by key stakeholder groups, as well as members appointed independently of stakeholder interests.

International Forum of Independent Audit Regulators (IFIAR):The IFIAR was established on 15 September 2006 by independent audit regulators from 18 jurisdictions. Since its creation, IFIAR's membership has grown in light of the establishment of new independent audit regulators in different jurisdictions around the globe, bringing together independent audit regulators from a total of 50 jurisdictions. The IFIAR core principlesseek to promote effective independent audit oversight globally, thereby contributing to members overriding objective of serving the public interest and enhancing investor protection by improving audit quality. Some of the core principles of IFIAR are mentioned below:

a) The responsibilities and powers of audit regulators should serve the public interest and be clearly and objectively stated in legislation

b) Audit regulators should be operationally independent

c) Audit regulators should be transparent and accountable

d) Audit regulators should ensure that their staff is independent from the profession

e) Audit regulators should be objective, free from conflicts of interest

f) Audit regulators should make appropriate arrangements for cooperation with other audit regulators and, where relevant, other third parties


Bangladesh-Speakers at ICAB Members' Conference stressed published in ICAB News Bulletin no. 280 on February 2013.

d) ICAB think there is no need for Financial Reporting Act - See more at: http://english.bdbulletin.com/2013/12/icab-think-there- is-no-need-for-f inancia l-reporting-act/#sthash.wy3t7Ols.dpuf.

e) Experts find flaws in draft Financial Reporting Act -13 see more at: http://www.newstoday.com.bd/index.php?option=details&news_id=2355054&date=2013-09-01.

f) ICAB opposes proposed Financial Reporting Act in the New Age on Saturday, August 31, 2013.

Playing a completely contrary role by the two professional accounting institutes in an era of mutual recognition and understanding puts a big question on the successful implementation of Financial Reporting Act. May be ICAB is worrying about its long years monopolistic role it has played to set accounting standards and to control the public accounting firms bypassing its regulation. And another reason may be its reluctance to allow another professional accounting institute to play role in the area of reporting. On the other hand, the ICMAB has taken it as a prestige issue to establish its due credential in the field of accounting and reporting.

From the very beginning, ICAB was completely against the FRA. As the Government is in the pressure of enacting such Act, now ICAB is proposing some amendments. It is good that they are demanding to make the Act in line with international examples; the reality is that they want to exclude ICMAB from the scope of such Act which is completely irrational. Bringing some irrelevant items like definitions of auditors, audits, professional accounting institutes etc, they are trying to make it complicated for the regulators so that it can be further delayed. The very purpose of the Act is to ensure transparency and accountability in accounting and reporting environment. On some basic areas, this Act share some common traits globally, however, this Act mostly varies due to the divergent accounting and reporting environment in different countries. Thus, the claim of ICAB to make an Act of global standard is not possible rather confusing. Rather, both ICAB and ICMAB should come together for the betterment of the profession. Because, ultimately one profession may act as the savior of another at the time of necessity as only these two institutes are professional accounting institutes in the country.

Federation of Accountants (SAFA) conference held in Dhaka, announces that the Government of Bangladesh is thinking to establish an independent oversight body to ensure accountability and transparency infinancial reporting system of the country. In 2003, while the World Bank Study report under the title 'Report on Observance of Standards and Codes (ROSC)' recommends that Bangladesh needs Financial Reporting Council, it become a policy agenda for regulators. However, it takes five years time for the policy makers to come up with a draft act named as 'Financial Reporting Ordinance 2008' during the caretaker government. Caretaker Government failed to pass the Ordinance during its tenure and thus it has been left for the elected government. In 2010, the political government has made a new version of the act named as Financial Reporting Act 2010. But due to strong criticism by few stakeholders, especially the Institute of Chartered Accountants of Bangladesh (ICAB), the Act has been revised multiple instances and is still awaiting to be passed.

The Institute of Cost and Management Accountants of Bangladesh (ICMAB) has taken pragmatic role to facilitate the Government in the process of such formation at different capacities as required by the government. Because, the ICMAB, one of the two established accounting institutes exist in the country, believes that it has enough scope of contribution for such initiatives where it is also an active stakeholder. The institute has organized workshops, contributes in drafting the Act, represented in different forums as an expert to the Act and its due process.

However, from the very beginning of its inception, the ICAB, the only national institute of the country certifying public accountants, has been opposing strongly against the Act for some reasons which are not properly founded. Even some veteranchartered accountants have written some articles criticizing the Act. Some of such articles are referred below.

a) Financial Reporting Act: ICAB versus FRC by Md Enamul H Choudhury, FCA in The Financial Express on Wednesday, 25 September 2013.

b) Insights into the proposed Financial Reporting Act by AF Nesaruddin a practising chartered accountant and a partner of Hoda Vasi Chowdhury & Co in The Daily Star on Tuesday, September 3, 2013.

c) Introduction of FRA won't contribute towards the Harmonization of Financial Reporting and Audit Practices in


Conclusion:It is the society who has given accountants an unparalleled status. In return, accountants should be careful in their demand and expectations. Essentially people expect more from an auditor than his actual role can supply, hence the expectations gap. One might take the view that audit expectations gap could never be closed. The ever demanding public would not be able to satisfy whatever role played by the auditors ranging from a watchdog, to financial gatekeeper and eventually they expect auditor to be an active whistleblowers. If the gap cannot be narrowed, it will result in frustrations among public and auditors. This has significantly contributed to the increase in legal suit against the auditors over the last decade. Image of auditing industry could be tarnished if no fruitful efforts are taken by the profession and authorities to narrow the gap. To certain extent, move to reduce the gap is very much political in nature. Still, it's a question of gaining acceptance from the society which cannot be compromised.

FRA and its effective implementation can be a strong intervention to narrow the expectations gap. FRA becomes necessary to establish trust and bring confidence on financial reporting by the investors and other stakeholders. Poor quality reporting, audit negligence, corporate scandals are not new in Bangladesh which create a basic foundation for the necessity of FRA. Self-regulatory regime has come to an end globally. Public accountants should come under regulation so that the general stakeholders' interest can be protected. In that case, global practices can be analyzed to make a pragmatic act. As one of the main targets of FRA is to protect the stakeholders from weak and erroneous reporting system initiated by the financial accountants, the role of chartered accountants in the council should be handled delicately. However, the global practice is that the practicing accountants cannot represent in such council like FRC (Financial Reporting Council). The council should be formed in a balanced way which can reduce the monopolistic behavior of public accountants and every interested stakeholder must have a proper representation on the council.

References:

1) Best, P.J., Buckby, S. and TAN, C. (2001), 'Evidence of the Audit Expectation Gap In Singapore', Managerial Auditing Journal, pp 134-144.

2) Brown, R.E. 1962. Changing Audit Objectives and Techniques. The Accounting Review 37: 696-703.

3) Butler, S.A., Ward, B.H. and Zimbelman, M.F. (2000), The Expectation Gap: Auditors' and Investors' Perceptions of Auditors' Fraud Detection Responsibilities, US.

4) Fadzly, M and Z. Ahmad 2004.Audit Expectation Gap: The Case of Malaysia" Managerial Auditing Journal 19: 897-915.

5) Frank, K.E., D.J. Lowe and J.K. Smith 2001. The Expectation Gap: Perceptual Differences Between Auditors, Jurors and Students; Managerial Auditing Journal, 16(3): 145-149

6) Gay, G., Schelluch, P. and Baines, A. (1998), 'Perceptions of Messages Conveyed by Review and Audit Reports', Accounting, Auditing & Accountability Journal, Vol. 11, No. 4, pp 472-494.

7) Gay, G., Schelluch, P. and Reid, I. (1997), 'Users' Perceptions of the Auditing Responsibilities for the Prevention, Detection and Reporting of Fraud, Other Illegal Acts and Error', Australian Accounting Review, Vol. 7, No. 1.

8) Gloeck, J.D. and H. Jappar 1993. The Audit Expectation gap in the Republic of South Africa: School of Accountancy Research Series, Research Report 93(1), University of Pretoria.

9) H?jskov, L. (1998), 'The Expectation Gap Between Users' and Auditors' Materiality Judgements in Denmark', paper presented at the Second Asian Pacific Interdisciplinary Research in Accounting Conference 4-6 August, Japan.

10) Humphrey C., P. Moizer and S. Turley 1992a. The Audit Expectation Gap plus ca change, plus c'est la meme close? Critical Perspective on Accounting 3 (2):137-161.

11) Humphrey C., P. Moizer and S. Turley 1992b. The Audit Expectation Gap in Britain: An Empirical Investigation: Accounting and Business Research; 23: 395-41.

12) Humphrey, C., P. Mozier and S. Turley 1993. Protection against Detection: The case of Auditors and Fraud; Accounting, Auditing and Accountability Journal, 6 (1): 55.

13) Innes, J., Brown, T. and Hatherly, D. (1997), 'The Expanded Audit Report - A Research Study Within the Development of SAS 600', Accounting, Auditing & Accountability Journal, Vol. 10, No.5, pp 702-717.

14) Kinney WR (1993). Auditor Liability: Opportunities for Research. J. Econ. Manage. Strateg., 2: 349-360.

15) Lee, T.H. and Md. A. Azham 2008b. The Audit Expectation Gap: A Review of Contributing Factors; Journal of Modern Accounting and Auditing; 4 (8) August.

16) Lee, T.H, J.D. Gloeck and A.K. Palaniappan 2007.The Audit Expectation Gap: An Empirical Study in Malaysia; Southern African Journal of Accountability and Auditing Research.7:1-15.

17) Liggio, C.D.(1974) " The expectation gap: the accountant's Waterloo", Journal of Contemporary Business, Vol 3, Spring,pp.27-44

18) Porter BA (2003). What is Auditing? Available at:www.media.wiley.com/productdata/exerpt/170/04708429/047084297

0.pdf.19) Porter, B (1993): An Empirical study of the Audit Expectation

Performance Gap: Accounting and Business Research 24:49-68.

20) Rama, D., & Read, W. J. (2006). Resignations by the Big 4 and the market for audit services. Accounting Horizons, 20(2), 97-109.

21) Salehi M (2007). Reasonableness of Audit Expectation Gap: Possible Approach to Reducing. J. Audit Pract., 4(3): 50-59.

22) Shaked, A and J. Sutton 1982. Imperfect Information, Perceived Quality and the Formation of Professional Groups: Journal of Economic Theory; 27: 170-181.


will respect you and then they will go the extra mile for you out of respect. The bigger challenge for a leader is to inject in motivation everyday. More than monetary incentives, matured employees in an organization do their best when they feel motivated in every work. A successful leader knows and understands every individual in his team and motivates them in a way that makes them have a high sense of belongingness.

Berger Bangladesh has the vision to be the most preferred brands in the industry ensuring consumer delight. How do you ensure every employee of the organization is aligned to the vision?

One thing we have is a program where every employee from every department interacts with

What does it take to be a successful leader?

I would say hardwork and continuous improvement with, of course, an element of luck. Luck is important as you have to be there at an opportune moment. However you won't get far without hardwork and the continuous search for improvements.

A leader's ultimate objective is to get the best out of the team - this starts from selecting the team, setting the goals, translating the vision into strategic plan. Ultimately, a leader's success comes from the people. People have different leadership style- autocratic, laissez-faire, democratic. The actual style does not matter in achieving success. Any type of style can take you to success. But what I think is that transparency is important. You must be transparent in all your actions. Only then people

Leaders of the Corporate WorldThe Journal is running a series of Interviews with the senior management of the organizations who were awarded the Best Corporate Award-2013 by ICMAB in 2014. The interviews focus on theleadership style and the organization's way of working that has helped it achieved corporate recognition.

Berger Paints was awarded a Best Corporate Award 2013 under the Multinational category. Here Rupali Chowdhury, Managing Director, Berger Paints Bangladesh, and President, FICCI, share with the readers, her views on leadership and her opinion on the National Budget 2015-2016.

About Rupali Chowdury

Rupali Chowdhury started her career with the multinational pharmaceutical and chemical company, Ciba Geigy (Bangladesh) Limited and was Brand Manager while leaving the company in 1990. She joined Berger Paints Bangladesh in 1990 as Planning Manager and during her tenure worked in different departments such as Marketing, Sales, Supply Chain and Systems under different supervisory capacities. Rupali Chowdhury was promoted to the position of Managing Director of the Company on 1 January 2008. She is an MBA from IBA, Dhaka University and completed her graduation with Honors in Chemistry from the University of Dhaka. She is the President of the Foreign Investors' Chamber of Commerce & Industries (FICCI). Rupali Chowdhury is the first female to be appointed as Managing Director of a multinational company in Bangladesh.


installed at workstations, I was pleased to see the level of dedication from these same employees. In return they were overwhelmed by the speed and accuracy of their work. My challenges as I became Managing Director were many. The areas I never worked directly were Finance and Human Resources. So I really had to understand and take time to appreciate the processes. In the corporate world, women leaders are few and far between. That is why it is important to speak up. I have seen that once I speak up- which I often do- people take note of my opinions and see me as an equal contributor on industry issues.

As the president of the FICCI, what are your initial thoughts on the National Budget 2015-2016?

I don't think there has been any drastic change in the National Budget this year. There has been some positive moves in the Income Tax allowances. We also welcome the new areas that have come under VAT. However unless the VAT collection process is made simpler, the Government will face huge challenge in reinforcing and collection. Now and again we have heard of online VAT payment; however there has not been any direction on the process of payment.

Over the last couple of years we are also hearing of the new VAT Act. From FICCI, we have been suggesting to the Government to sit with each sector to understand each industry peculiarities. The universal VAT Act will need to cater for specific industry as well to balance between maximizing VAT collection and ease of implementation. One of the areas we raised is the mandate to purchase only from VAT registered vendors. In the absence of an infrastructure that facilitates VAT registration, companies will be forced to purchase from VAT registered companies. It appears that the Government wants to force VAT Registration through this law. In reality, compliant companies will end up increasing cost of production in the pursuit of VAT registered companies, whilst non compliant companies will get away with lower purchase costs from unregistered, low -cost base vendors. This will make the compliant companies lose cost competency.

My final thought on the Budget is the lack of transparency on the actual performance of the budget of the previous years. The Government never shares how much budget has been spent, how much is the carry forward, and what is the newly allocated budget for the upcoming fiscal year. I believe citizens have a right to know the

sales & marketing. On a regular basis other employees are getting trained to understand our product better. The goal is to make every employee an internal ambassador for the company. Often our customers approach through our employees and it helps if the employees are fully aware of the products and can help out. As a result we are creating knowledge reservoirs within the organization. There is another thing we have recently started with the volume of Berger doubling in recent times and the sales force equally increasing in numbers. I wanted to stay in touch with the new comers. So we have started regular breakfast meeting with young talents. This helps me to be in touch with the people on both personal and company matters. Sometimes we get great ideas out of these meeting and I ensure full implementation of these ideas. I also use the forum to understand how our plans & policies- made by top management- are viewed and implemented to the lowest level of management. I try to be open with all the employees to get honest feedback.

You are the first female managing director of an MNC in Bangladesh. What were the initial challenges you faced when you took over the role?

My biggest challenge as a women faces is during the forming years. I have faced my own share of challenges at that level. Fortunately I joined at a senior level in Berger but the work challenges were steep. My biggest challenge was to overcome the manual system of tracking performance and deriving forecasts. This meant long hours and continuous shift between Chittagong (factory) and Dhaka (Head Office). At times I wondered whether I could continue. However I had no choice if I wanted to work in a multinational, as my husband was based in Chittagong and the number of MNCs in Chittagong were numbered. Finally I thought I will have to bring in changes if I want to make my work smoother. I made a strong proposal to introduce automation and actually got the approval with necessary resources. In those days (early 90s), automation was never accepted readily by management. Many of my colleagues were of the opinion that I wanted to reduce headcount. I really had to blend in with the people and culture to break the resistance. I actually went and played 'karam' with the male colleagues; I had tea and paan with employees who had been serving the company for over 20-25 years. I understood that I had to work through these teams who did not have much exposure to modern ways of working. Later, once all processes were automated and computers were


development budget performance, what has actually been achieved. Otherwise how do we understand and assess the performance of last year and justify the budget for this year.

There have been recent discussions on the fall in FDI (Foreign Direct Investment) in the country. What role do you think the Government should play in enhancing FDI?

I think the first step is to correctly benchmark the FDI for Bangladesh against the right economies. It would not be right to compare with countries like Nepal and Bhutan or even with countries like India or Indonesia. Within the region there are countries like Cambodia, Vietnam or Sri Lanka which we can compare against. The main driver for FDI is the strength of the domestic market. Any FDI assessment will take into account the purchasing power of the country. Another reason is the structure of the FDI inflow. In countries like India, Joint Venture is the main channel of FDI. In Bangladesh there are some JV channels as well as equity inflow. However the main opportunity lies through manufacturing investment. The government has important role to play here through stability in policies. It is important to keep up the commitment to promote policies related to FDI as this concerns international relations. We cannot commit to initiatives and then after a partial investment, withdraw committed facilities because the Government realizes the benefits are not mutual. For greater good of the country and for future FDIs the Government must first do a proper pre evaluation then keep to the promise of any FDI commitment.

From your experience in working with Finance teams, what are the key areas Finance professionals should focus on to assume leadership/general management roles in organisations?

Firstly, Finance persons need to develop empathy towards other departments and other activities. Often finance works with data at the very last stage. Hence they are not fully aware of the thought process or the activities that has happened beyond the numbers. Finance professionals are very black or white. They need to understand the grey bit. Not all actions will lead to direct impacts and there will always be sensitivities around any results. They need to reach across to people, understand product, markets and consumers. The other area, I believe, is getting a grip on MIS (Management Information Systems). Usually finance works through the

systems for the financials. However it is important to understand the MIS of other departments and the KPIs that drive the business performance and how these are linked with the financial performance.

Running large companies is demanding. You have been at the helm of a high growth business over last few years. How do you maintain your stamina and composure?

All leaders get frustrated at times. That is natural. However I believe in the saying 'Tomorrow must be better than today and today must be better than yesterday'. I feel that what is the point of giving up. If a situation is bad what happens if I give up. Will it improve the situation? Will someone do a better job than me? If someone does a better job than me then why I can't I do? Actually, I don't give up so easily. Stamina is something I am born with. I feel I can get involved in many things at one go.

You have been with Berger Paints for 25 years now. What message do you have for the young talents who are changing jobs (employers) frequently in pursuit of something more fulfilling?

One theory is the traditional Japanese thought to work lifetime with an organization. However some people need a change all the time. They are driven by new challenges all the time. New areas keep them motivated. There may be challenges in new roles in same organization. My only advice is not to change for short term. I believe you would need atleast 5 years to really understand a new business and contribute. However you may be a fast learner, may be you are not getting along with your boss or your may be you think career is getting blocked. Whatever the case you need to stay in a role for a minimum tenure. You need to move around different departments and gain other department's confidence and yourself be confident of your understanding of the full business, One should be in at a certain organization to be able to prove and contribute. Otherwise, once you are stamped with a job-hopping image, it is difficult to build a career. I am also not saying everyone should stay in place for 25 years like me! For me there has been a lot of growth and challenge within the organization. In the end I felt I had my personal growth throughout the 25 years. Finally, to me Berger is like an extended family, and there was no desire to move elsewhere.

[Interviewed by Zinnia T Huq, FCMA and Associate Editor, The Cost & Management].


Md. Abu Khair Hasanul Hasif Sowdagar, FCMA, FCA Senior Manager, Financial Controls, Standard Chartered Bank, Bangladesh

IAS 18 - Revenue

IFRS/IAS Update

Abstract:Accrual accounting is based on the matching of costs with the revenue they generate. It is crucially important under this convention that we can establish the point at which revenue may be recongnised so that the correct treatment can be applied to the related costs. For example, the costs of producing an item of finished goods should be carried as an asset in the statement of financial position until such time as it is sold; they should then be written off as a charge to the trading account. Which of these two treatments should be applied cannot be decided until it is clear at what moment the sale of the item takes place.

The decision has a direct impact on profit since it would be unacceptable to recognize the profit on sale had taken place in accordance with the criteria of revenue recognition.

IAS 18 governs the recognition of revenue in specific (common) types of transaction. Generally, recognition should be when it is probable that future economic benefits will flow to the entity and when these benefits can be measured reliably.

IAS 18 Revenue outlines the accounting requirements for when to recognise revenue from the sale of goods, rendering of services, and for interest, royalties and dividends. Revenue is measured at the fair value of the consideration received or receivable and recognised when prescribed conditions are met, which depend on the nature of the revenue.

IAS 18 was reissued in December 1993 and is operative for periods beginning on or after 1 January 1995.

History of IAS 18:

Date Development & CommentsApril 1981 Exposure Draft E20 Revenue RecognitionDecember 1982 IAS 18 Revenue Recognition1 January 1984 Effective date of IAS 18 (1982)May 1992 E41 Revenue RecognitionDecember 1993 IAS 18 Revenue Recognition (revised as part of the 'Comparability of Financial Statements' project)1 January 1995 Effective date of IAS 18 (1993) Revenue RecognitionDecember 1998 Amended by IAS 39 Financial Instruments: Recognition and Measurement, effective 1 January 200116 April 2009 Appendix to IAS 18 amended for Annual Improvements to IFRSs 2009. It now provides guidance for determining whether an entity is acting as a principal or as an agent.1 January 2017 IAS 18 will be superseded by IFRS 15 Revenue from Contracts with Customers

Probable flow of economic

benefit

Reliable measurement

Recognition


Related Interpretations:l IFRIC 18 Transfers of Assets from Customersl IFRIC 15 Agreements for the Construction of Real Estatel IFRIC 13 Customer Loyalty Programmesl IFRIC 12 Service Concession Arrangementsl SIC-27 Evaluating the Substance of Transactions in the Legal Form of a Leasel SIC-31 Revenue - Barter Transactions Involving Advertising Services

Revenue: the gross inflow of economic benefits (cash, receivables, other assets) arising from the ordinary operating activities of an entity (such as sales of goods, sales of services, interest, royalties, and dividends). [IAS 18.7]

Measurement of Revenue:Revenue should be measured at the fair value of the consideration received or receivable. [IAS 18.9] An exchange for goods or services of a similar nature and value is not regarded as a transaction that generates revenue. However, exchanges for dissimilar items are regarded as generating revenue. [IAS 18.12]

If the inflow of cash or cash equivalents is deferred, the fair value of the consideration receivable is less than the nominal amount of cash and cash equivalents to be received, and discounting is appropriate. This would occur, for instance, if the seller is providing interest-free credit to the buyer or is charging a below-market rate of interest. Interest must be imputed based on market rates. [IAS 18.11]

Recognition of Revenue:Recognition, as defined in the IASB Framework, means incorporating an item that meets the definition of revenue (above) in the income statement when it meets the following criteria:

l it is probable that any future economic benefit associated with the item of revenue will flow to the entity, and l the amount of revenue can be measured with reliability

IAS 18 provides guidance for recognising the following specific categories of revenue:

Sale of Goods:Revenue arising from the sale of goods should be recognised when all of the following criteria have been satisfied: [IAS 18.14]

l the seller has transferred to the buyer the significant risks and rewards of ownership l the seller retains neither continuing managerial involvement to the degree usually associated with

ownership nor effective control over the goods sold l the amount of revenue can be measured reliably l it is probable that the economic benefits associated with the transaction will flow to the seller, and l the costs incurred or to be incurred in respect of the transaction can be measured reliably

Rendering of Services:For revenue arising from the rendering of services, provided that all of the following criteria are met, revenue should be recognised by reference to the stage of completion of the transaction at the balance sheet date (the percentage-of-completion method): [IAS 18.20]

l the amount of revenue can be measured reliably; l it is probable that the economic benefits will flow to the seller; l the stage of completion at the balance sheet date can be measured reliably; and l the costs incurred, or to be incurred, in respect of the transaction can be measured reliably.

When the above criteria are not met, revenue arising from the rendering of services should be recognised only to the extent of the expenses recognised that are recoverable (a "cost-recovery approach". [IAS 18.26]


Interest, Royalties, and Dividends:For interest, royalties and dividends, provided that it is probable that the economic benefits will flow to the enterprise and the amount of revenue can be measured reliably, revenue should be recognised as follows: [IAS 18.29-30]

l interest: using the effective interest method as set out in IAS 39 l royalties: on an accruals basis in accordance with the substance of the relevant agreement l dividends: when the shareholder's right to receive payment is established

Disclosure [IAS 18.35]l accounting policy for recognising revenue l amount of each of the following types of revenue:

2 sale of goods 2 rendering of services 2 interest 2 royalties 2 dividends 2 within each of the above categories, the amount of revenue from exchanges of goods or services

Implementation GuidanceAppendix A to IAS 18 provides illustrative examples of how the above principles apply to certain transactions.

Quick Linksl Deloitte e-learning on IAS 18 l IAS 18 - Items not added to the agenda l IFRS 15 'Revenue from Contracts with Customers'

IFRS 15 - Revenue from Contracts with CustomersIFRS 15 specifies how and when an IFRS reporter will recognise revenue as well as requiring such entities to provide users of financial statements with more informative, relevant disclosures. The standard provides a single, principles based five-step model to be applied to all contracts with customers.

IFRS 15 was issued in May 2014 and applies to an annual reporting period beginning on or after 1 January 2017.

Date Development Comments

June 2002 Project on revenue added to the IASB's agenda History of the project

19 December 2008 Discussion Paper Preliminary Views on Revenue Recognition in Contracts with Customers published

Comment deadline 19 June 2009

24 June 2010 Exposure Draft ED/2010/6 Revenue from Contracts with Customers published

Comment deadline 22 October 2010

14 November 2011 Exposure Draft ED/2011/6 Revenue from Contracts with Customers published (re-exposure)

Comment deadline 13 March 2012

28 May 2014 IFRS 15 Revenue from Contracts with Customers issued

Effective for an entity's first annual IFRS financial statements for periods beginning on or after 1 January 2017


Superseded StandardsIFRS 15 replaces the following standards and interpretations:

l IAS 11 Construction contractsl IAS 18 Revenuel IFRIC 13 Customer Loyalty Programmesl IFRIC 15 Agreements for the Construction of Real Estatel IFRIC 18 Transfers of Assets from Customersl SIC-31 Revenue - Barter Transactions Involving Advertising Services

ObjectiveThe objective of IFRS 15 is to establish the principles that an entity shall apply to report useful information to users of financial statements about the nature, amount, timing, and uncertainty of revenue and cash flows arising from a contract with a customer. [IFRS 15:1] Application of the standard is mandatory for annual reporting periods starting from 1 January 2017 onwards. Earlier application is permitted.

ScopeIFRS 15 Revenue from Contracts with Customers applies to all contracts with customers except for: leases within the scope of IAS 17Leases; financial instruments and other contractual rights or obligations within the scope of IFRS 9Financial Instruments, IFRS 10Consolidated Financial Statements, IFRS 11Joint Arrangements, IAS 27Separate Financial Statements and IAS 28Investments in Associates and Joint Ventures; insurance contracts within the scope of IFRS 4Insurance Contracts; and non-monetary exchanges between entities in the same line of business to facilitate sales to customers or potential customers. [IFRS 15:5]

A contract with a customer may be partially within the scope of IFRS 15 and partially within the scope of another standard. In that scenario: [IFRS 15:7]

l if other standards specify how to separate and/or initially measure one or more parts of the contract, then those separation and measurement requirements are applied first. The transaction price is then reduced by the amounts that are initially measured under other standards;

l if no other standard provides guidance on how to separate and/or initially measure one or more parts of the contract, then IFRS 15 will be applied.

Key DefinitionsContract: An agreement between two or more parties that creates enforceable rights and obligations.

Customer: A party that has contracted with an entity to obtain goods or services that are an output of the entity's ordinary activities in exchange for consideration.

Income: Increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in an increase in equity, other than those relating to contributions from equity participants.

Performance Obligation: A promise in a contract with a customer to transfer to the customer either:

l a good or service (or a bundle of goods or services) that is distinct; or l a series of distinct goods or services that are substantially the same and that have the same pattern

of transfer to the customer.

Revenue: Income arising in the course of an entity's ordinary activities.

Transaction price: The amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties.


Jargons are essential to understand the overall operation of stock exchanges which is discussed in chapter three. Following this, the discussion of the book sheds light on capital market and money market. This part provides an insightful discussion to understand the interrelation of capital market and money market, and most importantly the role of financial institutions in capital market operation. The knowledge about the theories of capital market is essential to understand capital market dynamics. The chapter five discusses different theories of capital markets which follows the technical discussion on valuation in chapter six. This part summarizes different valuation models which may assist readers to contrast among models. The chapter seven, eight and nine discusses on share price in secondary market, behavioral finance and portfolio management respectively which is highly relevant and effective for investors to enhancing their understanding about the multifaceted movement of stock prices and stock return. The discussion on mutual fund and hedge fund in this book is an important contribution in the scarce literature on mutual fund and hedge fund in the context of Bangladesh. The chapter twelve presents the corporate governance scenario of Bangladesh and its comparative discussion with corporate governance scenario of USA, UK and India. Indeed,

Basics of Capital Marketby Mahbub Hossain Mazumdar FCMA.

Basics of Capital Market. Dhaka: Somoy Prokasoni, Bangla Academy Book Fair, 2015

Basics of Capital Market is an intellectual compilation of knowledge about capital market with special focus on the context of Bangladesh. The book answers some important questions of what are the different functional aspects of capital markets. The author, Mahbub Hossain Muzumdar FCMA, was born in 1969 in an illustrious family of Dhaka. He is a professional Cost & Management Accountant from Institute of Cost & Management Accountants of Bangladesh (ICMAB) and currently holds the position of Chief Executive of AFC Capital Ltd (a merchant bank).

The book is a timely initiative by the author to disseminate knowledge about capital market issues when investors' lack of awareness is treated as one of the important factors for capital market collapse in Bangladesh. The contents of the book have high value to delivering primary idea about Bangladesh's capital markets with the global phenomena. Specially, the new learners about capital market can get an excellent support from this book to find the answers of their important questions.

The first chapter of the book focuses on the general discussion about capital markets in Bangladesh including the history and basic functions of stock exchange. Thereafter, the book highlights the historical trend of some globally renowned stock exchanges to set an international phenomenon of capital market. Capital Market

Book Review


the analysis of code of corporate governance promulgated Bangladesh Securities and Exchange Commission (BSEC) can enhance the awareness of readers about corporate governance requirements in Bangladesh. In addition, the discussion on golden rules of investment may magnify the understanding of readers regarding key factors should be considered in taking investment decision in stock markets. This book presents some big stock market scams in the global context and also highlights the stock market scams in Bangladesh which may give the opportunity to readers to get an idea about capital market scams in different contexts. Moreover, this knowledge about the stock market scams is valuable to readers to understand some unexpected reality of capital market. The chapter sixteen discusses about the qualitative and quantitative parameters are used by investors in investment decision making which can give a holistic orientation about the investment decision. The book ends with the discussion on prospects of Bangladesh capital market comprising problems and prospects of the underdeveloped market.

In brief, the book is an excellent compilation of some key issues relevant to capital market in the context of Bangladesh. However, the contents of the book suffer from the lack of real life examples which could make easy for the readers to understand the complex issues and phenomena of capital market. In addition, though the book accumulates a lot of issues of capital market, the story telling approach is absent to present the literature. Nevertheless this book is a valuable contribute in the scarce literature on capital market in Bangladesh which may be helpful to educate investors about the essence of investment decision as well.

The book is reviewed by: Syed A. Mamun, Ph.D., ACMA, Associate Professor, School of Business Studies, Southeast University, Bangladesh.

Author's Profile:Mr. Mahbub Hossain Mazumdar FCMA was born in 1969 in an illustrious family of Dhaka. His parents belonged to Chandpur district in Bangladesh. His father is Late Manirul Islam Mazumdar, who was a respected government officer and his mother is Mrs. Rashida Begum, who served as a headmistress of a school. Mr. Mazumdar obtained his Master's degree in Accounting from University of Dhaka in 1990. He completed his CMA degree at ICMAB in 1997. He got his FCMA designation in 2005. He is currently serving as the Chief Executive of AFC Capital Ltd. (A Merchant Bank) and Managing Director (MD) of United Corporate Advisory Services Ltd. (UCAS). He worked in different renowned for profit organizations. He is an EC member of Bangladesh Merchant Bankers Association and a reputed member of the General Body of FBCCI. He is known as an expert of capital market, Mr. Mazumdar appeared in many business talk shows for building awareness on capital market among the investors and common people. Most of these programs are shown in electronic medias. In 2015, he wrote a book on capital market "Basics of Capital Market" which gained tremendous popularity among capital market stakeholders in Bangladesh. His publications include "Book-building and its significance in better IPO" and "Trade Facilitation in Bangladesh: Hindrances and Needed Initiatives for Export Competitiveness". In personal life, he is married and they are blessed with one child.

On pursuing the CMA qualifications from ICMAB …

When I was in MBA (CU) I was thinking of something different that will lift me up to my dream career of being a Business Leader. I had analyzed various options of specialized studies in business sector. I came to know that CMA qualified professionals have a very high demand in the business world. I saw many CMAs were working in the top position of the market leading companies. Spotting the fascinating and exciting progression of CMA qualified peoples in their career; I was determined to be one of them. As soon as I completed my MBA (CU) in Finance, I went to ICMAB Chittagong Branch to get myself admitted in ICMAB.

On applying the CMA qualifications at workplace…

CMA qualification helps me in my professional life activities. As a professional accountant I have to perform specific jobs for my company like-Financial Analysis, Budgeting and Budgetary Control, Costing, Preparing Financial Statements, Tax and VAT Accounting, KPI Analysis, Transfer Pricing, Product Pricing, Payroll Management, Materials Management, Inventory Control and many other things according to managements need for decision making. To deliver all of this information, my CMA knowledge supports me in each and every level. Besides that, CMA qualification helps me to see the company financial information from both the sides- internal point of view as well as external reporting purpose. I would say a CMA qualified accountant has both the strength of being a professional accountant Cost and Management Accounting (for internal use) skills as well as Financial Accounting (for external reporting) skills. So CMA is better than any other professional accounting qualification.

On the main challenges in studying for CMA…

As I was engaged with full-time job during my CMA study, it was too challenging to manage time for the study. I had very little time to study within my busy work schedule. So I always tried to make best use of my time for study to pass the challenging CMA exams. Although CMA syllabus is large as well as creative and innovative, questions makes the students puzzled in the exam hall, I tried to cover ins and outs of the syllabus so that I could answer all the questions accordingly and not got mystified by a

difficult question. I sacrificed my leisure time for my CMA study and concentrated on exam preparation while my family and friends enjoyed their time in different events and programs.

On CMA Qualification areas that can help me more to succeed…

CMA can help me more by making me updated about my professional knowledge. By regular CPD program it can support me to update myself with current knowledge and practices. By organizing some specialized training, CMA can make me well equipped for my job and more competent in my work area. Sharing the practical experience by senior members among the juniors like me can improve understanding the business environment and help to take good decisions for my organization.

My tips for CMA students in the last stage…

First of all I must say "Don't Give Up!" Success will definitely come if you are determined to achieve it. Practice as much solved problems as possible for mathematical subjects and try to understand the core concepts of every theoretical matters. By only memorizing some areas of the syllabus in this stage one can't get good marks and pass. I think better to gain understanding of every little concept in the syllabus and visualize the application of this theory in real life situations, which will help you to remember the topic and write it in the exam. Use your time properly by making schedule and strictly follow it. Try to understand what is the topic is about rather memorizing it. Make notes for key points, it will help you when revising the topics.

My expectations from ICMAB, as my alumni…

As a new member of the ICMAB family, I would expect a proper guideline from experienced members, counseling for my career plan and suggestions for personal development. I need support and cooperation from ICMAB family for preparing myself well equipped so that I can make my ICMAB family proud through delivering an excellent result and my better performance into my work place.

[Interviewed by Zinnia T Huq, FCMA and Associate Editor, The Cost & Management].


Young Professionals' WorldThis section focuses on young CIMA professionals and how they are shaping their career and aspirations through applying the CMA knowledge in the workplace.

Abu Naser Mohd. Helalis a recently CMA passed finalist and is currently Finance Manager, KAFCO. Mohd. Helal holds an MBA from Chittagong University and an LLB degree from National University. He shares insights on why he has pursued the CMA profession from ICMAB and provides tips to CMA students in the final stage.


The Institute organized a Workshop on "Transfer Pricing" on May 9, 2015 at ICMAB Ruhul Quddus Auditorium, ICMA Bhaban, Dhaka.

Mr. Md. Nojibur Rahman, Secretary, Internal Resources Division (IRD) & Chairman, National Board of Revenue (NBR) inaugurated the Workshop as the Chief Guest while Mr. Aminur Rahman, Former Member (Tax Policy), NBR and Mr. Md. Shabbir Ahmed, Joint Director, CIC & Coordinator, Transfer Pricing, NBR presented technical papers as Resource Persons.

Mr. Nikhil Chandra Shil FCMA made a brief presentation on the "Role of Cost and Management Accountants in Transfer Pricing" in the inaugural session.

President of ICMAB Mr. A. S. M. Shaykhul Islam FCMA presided over the opening ceremony of the Workshop. Chairman, Seminar and Conference Committee Mr. Mohammed Salim FCMA delivered the welcome address while Secretary of ICMAB Mr. Md. Abdur Rahman Khan FCMA offered the vote of thanks on the occasion.

President of ICMAB A.S.M Shaykhul Islam FCMA in his speech proposed that the expertise of CMAs could be used in preparing and certifying transfer pricing statements and other financial documents by bringing needed amendments in the Finance Act 2015. He said that CMAs have the specialized expertise in costing and pricing and as such they should be the first choice in certification or authentication of transfer pricing documents. He also called upon the talented officers of NBR to conduct survey on Corporate Tax Rates and Corporate Tax payment modalities in other countries, particularly the neighbors and to make necessary provisions in the regulations to prevent transfer of profits to other countries. The President suggested that NBR could use ICMAB members and students in research and surveys on tax related issues.

Mr. Md. Nojibur Rahman NBR Chairman in his speech, appreciated the professional skill, ethics and morality of the ICMAB members. He stressed upon the importance of integrity and professionalism and mentioned that he would think of building a strategic partnership between NBR and ICMAB with regards to expansion of tax net and other areas of taxation in the coming days .

Nearly 200 participants including high officials of different private and public organizations and members of the Institute attended the day long workshop.

Workshop on ''Transfer Pricing''


A delegation of the Institute of Cost and Management Accountants of Bangladesh (ICMAB) headed by its President Mr. A.S.M Shaykhul Islam FCMA called on Mr. Mohammad Iqbal, Chairman, Bangladesh Chemical Industries Corporation(BCIC) at his office on May 12, 2015.

The ICMAB President apprised the Chairman, BCIC about the role of Cost and Management Accountants in enterprise management, cost control and performance evaluation of business and industrial sectors. Besides the discussion on the matters of mutual professional interest, President ICMAB also explained how the trade and industries sector of the country could be benefited through Cost and Performance Audit. He also urged upon the need for implementing Cost Audit in different fertilizer factories, in accordance with the decision of the government published through Gazette notification.

The BCIC Chairman gave the assurance of implementing the decision of the government with regards to Cost Audit gradually and step by step. He assured to find out the areas of co-operation between BCIC and ICMAB.

Among ICMAB delegates Past Presidents Mr. M. Abul Kalam Muzumdar FCMA, Mr.A K M Delwer Hussain FCMA, Mr. Mohammed Salim FCMA, Treasurer Prof. Dr. Swapan Kumar Bala FCMA, Cost Consultant Md. Asaduzzaman Khan FCMA and Director Md Humayun Kabir were present in the meeting.

The BCIC team included its Director (Finance) Md. Abdul Hye, Controller of Accounts Mohammad Shaheen Kamal, General Manager, Finance Division Mr. Md. Lutfor Rahman FCMA and Additional Chief Accountant Mr. Subhasish Adhikary FCMA were also present during above discussion.

ICMABdelegation calls onChairman, BCIC


High - Level Meeting on South-South and Triangular Cooperation in the post-2015 Development Agenda: Financing for Development in the South and Technology Transfer jointly organized by Internal Resource Division (IRD), Ministry of Finance and National Board of Revenue NBR, Government of the People's Republic of Bangladesh held on May 18, 2015 at Sonargaon Hotel, Dhaka.

Mr. A.S.M Shaykhul Islam, FCMA President of The Institute of Cost and Management Accountants of Bangladesh (ICMAB) attended as a panelist in the Impact Session on - "International Tax Cooperation".

Mr. Md. Nojibur Rahman, Secretary, Internal Resources Division (IRD) & Chairman, National Board of Revenue (NBR) as the Session Chairman. Hon'ble Finance Minister Mr. Abul Maal Abdul Muhith MP also attended the Session.

ICMAB President attendsImpact Session under

South-South andTriangular Cooperation

in the post-2015Development Agenda


A delegation of the Institute of Cost and Management Accountants of Bangladesh (ICMAB) headed by its President Mr. A S M Shaykhul Islam FCMA handed over a cheque of Tk. 5 lac to H. E. Mr. Hari Kumar Shrestha, Ambassador Extraordinary Plenipotentiary, Nepal Embassy at Dhaka on May 21, 2015 for the rehabilitation of the earthquake victims in Nepal.

The ICMAB delegation also included the Institute's Secretary Mr. Md. Abdur Rahman Khan FCMA and Director of the Institute Lt. Col. Md Humayun Kabir psc (Rtd.)

ICMAB'sContribution forNepal Earthquake Victims


A delegation of ICMAB headed by its President Mr. A.S.M Shaykhul Islam FCMA called on Mr. Abrar A. Anwar, Chief Executive Officer, Standard Chartered Bank ( SCB) Bangladesh at his office on June 04, 2015.

The ICMAB President apprised the CEO about the role of Cost and Management Accountants in enterprise and financial management, performance evaluation and sustainable development. They discussed among others, matters of financial reforms, risk management and the growth of industry and service sectors. The CEO, SCB expressed his interest to make strategic partnership with ICMAB for the development of efficient human resources for banks and financial services. He also assured to work together to introduce e-learning facilities and web based knowledge projects.

They also agreed to find more areas of co-operation between SCB and ICMAB in the days ahead.

Among ICMAB delegates Past Presidents Mr. Muzaffar Ahmed FCMA, Mr. Mohammed Salim FCMA, and Director Lt Col (retd) Mr. Md Humayun Kabir, psc were present in the meeting. Mr. Imtiaz Ibne Sattar, Chief Financial Officer, SCB also took part in the discussion.

Mr. A.S.M Shaykhul Islam FCMA, president of the Institute of Cost and Management Accountants of Bangladesh (ICMAB) called on Mr. Shyam Sunder Sikder, Secretary, Information and Communication Technology Division, Ministry of Posts, Telecommunications and Information Technology, Government of the People's Republic of Bangladesh at his office on June 10, 2015 to discuss matters of human resources development for the emerging ICT sector of Bangladesh.

Mr. Shaykhul apprised the Secretary about the professional expertise of the Cost and Management Accountants and their role in the industry and service sectors of the national economy. He also requested the Secretary to create an opportunity where ICMAB can work with Information and Communication Technology (ICT) Division and contribute their expertise knowledge in ICT related training and developments. The Secretary assured the ICMAB delegation to extend necessary co-operation where possible.

Among others, Past President Mr. Mohammed Salim FCMA, Secretary Md. Abdur Rahman Khan FCMA, Member of ICT Committee Mr. Md. Faruque Sikder FCMA and Director Lt. Col. Md Humayun Kabir psc (Rtd.) were present on the occasion and took part in the discussion.

ICMAB delegate meetsthe Secretary, Information and Communication Technology Division

ICMAB and Standard Chartered Bank agree to

strengthen mutual cooperation


The institute has organized an open discussion to exchange views on Financial Reporting Act with the honorable members of the institute on 27 June at 4:30 pm at the ICMAB Ruhul Quddus Auditorium. The president of the institute, Mr. A.S.M. Shaykhul Islam, FCMA, has updated the members with the initiatives undertaken by the institute to confirm the representation of ICMAB in the proposed council under FRA along with some other suggestions to maintain the essence of such act in a global perspective. The session highlights the move of the institute from every respect as an outcome of some professional conflictions on some basic ground like composition of the council, registration of firms, accounting standard setting process, imposition of penalties etc. Among others Past Presidents of the Institute Mr. A.B.M. Shamsuddin, FCMA, Mr. Md. Abdul Aziz, FCMA, Mr. A.K.M. Delwer Hussain, FCMA, Mr. Mohammed Salim, FCMA and Treasurer Prof. Dr. Swapan Kumar Bala, FCMA spoke on the occasion. The session was followed by Iftar.

We are deeply shocked at the sad demise of Mr. Md. Rezaul Haque FCMA (F- 0768). Mr. Haque passed away on June 13, 2015 at his residence, Mirpur -1, Dhaka (Inna Lillahe .............. Rajeun).

On behalf of the Institute we express condolence to the members of his bereaved family and pray to the Almighty for the salvation of his departed soul. May Allah rest him in eternal peace.

Open Discussion on Professional Matters of ICMAB

WE MOURN

Fellow Member of ICMABMr. Ruhul Ameenhas joined BD Thai Aluminium Ltd. As it's Managing Director

ACHIEVEMENTSACHIEVEMENTS

Mr. Ruhul Ameen, FCMA (F-0088)has recently joined BD Thai Aluminium Ltd., (BTA) as it's Managing Director. The company is listed in the Stock Exchanges in Bangladesh. Since 1979, BTA is the pioneer factory in producing Aluminium profile - a substitute of wooden products such as frames for doors, windows, false ceilings, partition walls etc. These are extensively used in the construction industries, furniture and furnishings at home and abroad.

One of the main reasons that Mr. Ruhul Ameen joined BTA, was because he was impressed by the company's CSR. Prior to joining BTA, Mr. Ameen held many senior positions in local, multinational and foreign Companies. He has a proven track record of success for more than 35 years of which last 25 years was with Excelsior Shoes Ltd., the countries 1st 100% export oriented Sports shoes manufacturing and exporting company in CEPZ., Chittagong Bangladesh in various senior management positions lastly as Deputy Managing Director for 15 years with the entire satisfaction of the Management and the Board of Directors. He has extensively toured USA, Canada, Europe and many other countries. He has successfully introduced and popularized Bangladeshi products in the international market.

He was the first to be elected as President of the Bangladesh Sports Shoes Manufacturers and Exporters Association (BSSMEA). He is an active Member of several socio-economic and socio cultural organization like, International Lions Club, Bangladesh Economic Association etc., and awarded as best team leader from those. He is a senior Fellow member of the Institute of Cost & Management Accountants of Bangladesh and held many important positions such as Chairman (1990), Dhaka Branch Council, Secretary (2002) and Vice President (2003) of National Council of ICMAB.


Fellow Member of ICMABChowdhury Mohammad Wasiuddinawarded Ph.D

Khan Md. Abdul Wahab FCMA attendedAnnual APAC SME Banking Conference

Chowdhury Mohammad Wasiuddin FCMA, Managing Director & CEO (CC) of Padma Islami Life Insurance Ltd. achieved Ph.D degree recently from Chittagong University. He was awarded the degree for his research title "An Evaluative Study of the Performance of Pharmaceutical Industry in Bangladesh" under the supervision of Dr. Santi Ranjan Das, Professor of Department of Accounting & Information System of Chittagong University. Dr. M. Humayan Kabir, professor of Rajshahi University and Dr. Mohammad Shajahan Ali, Professor of Kustia Islami University were external examiners of his Ph.D course.

Mr. Wasiuddin also completed M. Phil. Course under the supervision of Dr. Milon Kumar Bhattachajee, former Professor of Department of Accounting & Information System of Chittagong University. He also obtained BBA & MBA from same University. He is a fellow member of both the professional accounting institutes in the country, the ICAB and the ICMAB.

Khan Md. Abdul Wahab FCMA, Assistant General Manager of Agrani Bank Limited attended the 3rd Annual APAC SME Banking Conference which was held on 2nd & 3rd June, 2015 at the Royale Chulan Hotel, Kuala Lampur, Malaysia, organized by Fleming Gulf, Malaysia.

Md. Mahsudur Rahman, FCMA, FCA has participated in the Asian Body building Championship in Japan from 5-7 June and achieved "Bronze Medal". The Gold and the Silver medals were won by Japan and South Korea respectively.

Also Mr. Rahman has achieved "Top Five (5th position)" in Colombo, Sri Lanka in the similar competitions held during the past two years.

At the national level, Md. Mahsudur Rahman won the title "Mr. Bangladesh" ; he was also awarded the Gold medal in the mega sports event , 'Bangladesh Games".

This is a great achievement for the nation by one of our fellow member, Mr. Mahasudur Rahman. Let us congratulate Mr. Mahasudur Rahman and pray for his further success in the future.


Md. Mahsudur Rahman FCMAAchieved Bronze Medal in Japan


activitiesactivitiesDBC News

Day Long Training program on "Tax Deducted at Source (TDS) and VAT Deducted at Source (VDS)" was organized by the DBC at ICMA Bhaban, Nilkhet, Dhaka. The program was held on May 01, 2015. DBC Chairman Mr. S.M. Zahir Uddin Haider FCMA presided over the program. The program was moderated by DBC Vice Chairman Mr. Md. Mushfiqur Rahman FCMA. In the program, there were two technical sessions. Resource persons of the program were Mr. Ranjan Kumar Bhowmik FCMA, Director General, BCS (Tax) Academy, Dhaka and Mr. Md. Mashiur Rahman, Deputy Director, Customs Intelligence and Investigation Directorate, National Board of Revenue, Dhaka and Large number corporate executives including ICMAB members attended the training program.

Day Long Training Program on "Tax Deducted atSource (TDS) and VAT Deducted at Source (VDS)"

The Dhaka Branch Council (DBC) of ICMAB organized a Discussion Program on View Exchanging with DBC Sub-Committees for CMAs on May 12, 2015 at ICMA Bhaban, Nilkhet, Dhaka. Mr. S.M. Zahir Uddin Haider FCMA, Chairman of DBC presided over the Program. The program was moderated by DBC Secretary Mr. S.M. Afjal Uddin FCMA. DBC Treasurer Mr. Monjur Md. Shaiful Azam FCMA offered the vote of thanks. Almost all Chairmen, Vice Chairmen & Secretaries of 22 Sub-Committees of DBC 2015 attended and took part in the discussion.

Views Exchanging with DBC Sub-Committees.


The Dhaka Branch Council (DBC) of ICMAB organized a 6 day training program on the "Tally Software" for ICMAB Students on May 22, 2015 at ICMA Bhaban, Nilkhet, Dhaka. Mr. Mohammad Golam Sabur FCMA, Chairman of Dhaka Branch Professional Grooming & Counseling Committee 2015 presided over the Program. Mr. S.M. Zahir Uddin Haider FCMA, Chairman of DBC Inaugurated the program as Guest of honor. A renowned tally expert Mr. Mohammad Ishaq Ali, CEO, NIT Creative Solutions (an authorized Tally Partner in Bangladesh) spoke on the session as the Resource Person. A good number of students of the Institute was present and actively participated in the program.

Knowledge Sharing Session on"Winning Job Interview Techniques"

DBC's Knowledge Sharing Session on "Tally Software"

The Dhaka Branch Council (DBC) of ICMAB organized a Knowledge Sharing Session on "Winning Job Interview Techniques" for ICMAB Members on May 14, 2015 at ICMA Bhaban, Nilkhet, Dhaka. Mr. S.M. Zahir Uddin Haider FCMA, Chairman of DBC presided over the Program. Mr. Jishu Tarafder, Chief C o n s u l t a n t , CORPORATECOACH, Fellow Member, BSHRM and Mr. Riyad Hossain, Renowned HR Professional, Fellow & Executive Council Member, BSHRM, JCI Certified Trainer was present as the Session Chairman & Resource Person respectively. Mr. Abu Sayed Md. Shaykhul Islam FCMA, President of the Institute was present as the Guest of Honor. Mr. H.M. Mainuddin Ahmed FCMA Vice-Chairman of Professional Grooming & Counseling Committee nicely conducted the program. Mr. Mohammad Golam Sabur FCMA, Chairman of Professional Grooming & Counseling Committee offered welcome address & DBC Vice Chairman Mr. Md. Mushfiqur Rahman FCMA offered the vote of thanks.

A two-day training program on "Secretarial Practice, Right Issue, Initial Public Offering (IPO), Listing & Post Listing Formalities and Corporate Governance" was organized by the DBC at ICMA Bhaban, Nilkhet, Dhaka. The programs were held on May 22 & 23, 2015. The programs were presided over by DBC Chairman Mr. S.M. Zahir Uddin Haider FCMA. In the program, there were Six technical sessions. Resource persons of the programs were Mr. Muhammad Nazrul Islam FCMA, General Manager - Operation, Alliance Financial Services Ltd., Mr. A.K.A. Muqtadir FCS, Past President ICSB and Corporate Consultant, Al-Muqtadir Associates, Mr. Shafiqul Islam Bhuiyan, Head of Listing, DSE, Mr. M. Hasan Mahmud, Executive Director, Corporate Finance Department, Bangladesh Securities and Exchange Commission and Large number corporate executives including ICMAB members attended the training programs.

DBC organized a discussion on "Foreign Currency Management -Trade Perspective" for CMAs on May 23, 2015 at ICMA Bhaban, Nilkhet, Dhaka. The Discussion Session was presided over by DBC Chairman Mr. S.M. Zahir Uddin Haider FCMA. Mr. M. Abul Kalam Mazumdar FCMA was present as the Session Chairman. Mr. Joydeb Dutta ACA, FCMA, General Manager, DBL Group spoke on the session as the Resource Person. DBC Secretary S.M. Afjal Uddin FCMA offered the welcome address and introduced the Session Chairman. The program was well attended, with many members actively participating in the discussions. Mr. Mohammad Alamgir FCMA, Chairman of DBC Seminar & Conference Committee-2015 nicely conducted the program and DBC Vice Chairman Mr. Md. Mushfiqur Rahman FCMA offered vote of thanks.


Two Days Training Program on"Secretarial Practice, Right Issue, Initial Public Offering (IPO),Listing & Post Listing Formalities and Corporate Governance"

Discussion Session on"Foreign Currency Management -Trade Perspective"

Four Week Long Workshop & Training Program on "Financial Modeling" was organized by the DBC at ICMA Bhaban, Nilkhet, Dhaka. The programs were held from May 26, 2015. The programs were presided over by DBC Chairman Mr. S.M. Zahir Uddin Haider FCMA. In the program, there were seven technical sessions. Resource persons of the programs was Mr. Toaha Muhammad, Renewable Energy Marketing Specialist for "Monitoring and Assessment, Reporting and Advisory for Selected RE Projects of IDCOL and Large number corporate executives including ICMAB members attended the training programs.


Four Week Long Workshop &Training Program on "Financial Modeling"

1st Meeting of Dhaka Branch Advisory Committee-2015The 1st Meeting of Dhaka Branch Advisory Committee-2015 was held on May 30, 2015 at 5:p.m. in the Council Room of the Institute. Mr. Md. Ishaque FCMA, Chairman of the Dhaka Branch Advisory Committee presided over the meeting. The participants discussed various issues and advised 30th DBC on many aspects.

Grooming Program for ICMAB StudentsThe Dhaka Branch Council (DBC) of ICMAB organized a Grooming Program "Winning Job Interview Techniques" for ICMAB Students on May 28, 2015 at ICMB Ruhul Quddus Auditorium, Nilkhet, Dhaka. Mr. S.M. Zahir Uddin Haider FCMA, Chairman of DBC presided over the Training Program. Mr. A.H.M. Kamal ACMA, Vice President & Head of HR Operations and performance Management, Human Resources Division, IFIC Bank Limited and Mr. Md. Nawshad Pervez, General Manager-HR Division, Square Hospitals Ltd. were present as the Resource Persons. Mr. Md. Golam Sabur FCMA, Chairman of Dhaka Branch Professional Grooming & Counseling Committee-2015 nicely conducted the program. A good number of students of the Institute were present and actively participated in the program.

The Dhaka Branch Council of the Institute organized a DBC its Foundation Ceremony on May 30, 2015 in the ICMAB Ruhul Quddus Auditorium, Nilkhet, Dhaka. Mr. S.M. Zahir Uddin Haider FCMA, Chairman of DBC presided over the program. Mr. Rafiq Ahmad FCMA, Past President and one of the founder members of the Institute was present as the Guest of honor. Mr. Md. Ishque FCMA, Past President of the Institute and the Founder Chairman of DBC and Mr. A. S. M. Shaykhul Islam FCMA, President of the Institute were present as guests. A large number of Past DBC Chairmen, Members and guests were joined the program enthusiastically. All the past Chairmen shared their experiences. The program included Cultural Show where Mr. Rafiq Ahmad FCMA, Mr. Mohammad Jalaluddin Khan FCMA and Mr. S.M. Zahir Uddin Haider FCMA also performed. The program was concluded by a fellowship dinner.


DBC Foundation Ceremony

Seminar on "Organizational Development:A Capacity Building Approach" organized with CPD credit

DBC organized a Seminar with CPD credit on "Organizational Development: A Capacity Building Approach" for CMAs on June 16, 2015 at ICMA Bhaban, Nilkhet, Dhaka. The Discussion Session was presided over by DBC Chairman Mr. S.M. Zahir Uddin Haider FCMA. Mr. Shawkat Hossain FCMA, Managing Director, BD Venture Limited was present as the Session Chairman. Mr. Naba Krishna Muni FCMA, Director, Organizational Capacity Building, USAID'S ACME Activity in Bangladesh spoke on the session as the Resource Person. Mr. Mohammad Golam Sabur FCMA, Chairman of Dhaka Branch Professional Grooming & Counseling Committee-2015 offered the welcome address and introduced the Session Chairman. Mr. A.S.M. Shaykhul Islam FCMA, President of the Institute also present as the Guest of Honor. A good number of members were present and actively participated in the discussion session. Mr. Shamimul Islam ACMA, Chief Financial Officer, Bangladesh Building Systems Ltd. nicely conducted the program and DBC Vice Chairman Mr. Md. Mushfiqur Rahman FCMA offered vote of thanks.


DBC's Knowledge Sharing Session on"Excelling Your Excel & PowerPoint"

Condolence Meeting, Millad and Do'a Mahfil held forLate Mr. A.K. M. Shah Alam Khan FCMA (F-0483) &

Mr. Md. Rezaul Hoque FCMA (F-0768)

The Dhaka Branch Council (DBC) of ICMAB organized a 4 day training program on "Excelling Your Excel & PowerPoint" for ICMAB Students on June 20, 2015 at ICMA Bhaban, Nilkhet, Dhaka. Mr. Mohammad Golam Sabur FCMA, Chairman of Dhaka Branch Professional Grooming & Counseling Committee 2015 presided over the Program. Mr. S.M. Zahir Uddin Haider FCMA, Chairman of DBC Inaugurated the program as Guest of honor. Excel Automation Expert Professional Trainer Mr. Md. Nazmul Muneer spoke on the session as the Resource Person. A good number of students of the Institute was present and actively participated in the program.

The Dhaka Branch Council (DBC) of the ICMAB arranged a Condolence Meeting and Do'a Mahfil on 20th June, 2015 at ICMAB's DBC Floor, Dhaka on the sad demise of Mr. A.K. M. Shah Alam Khan FCMA (F-0483) expired on 19.04.2015 & Mr. Md. Rezaul Hoque FCMA (F-0768) expired on 13.06.2015. On behalf of family of Late Mr. A.K. M. Shah Alam Khan FCMA & Mr. Md. Rezaul Hoque FCMA (F-0768) attend the program. Mr. Aby Sayed Md. Shaykhul Islam FCMA, President of the Institute, Council Members of the Institutes & DBC Chairman Mr. S.M.Zahir Uddin Haider, FCMA & other Councilors of the Dhaka Branch Council spoke on the occasion. Finally, a Millad and Do'a Mahfil flowed by Iftar was arranged and a Munajat was offered for the salvation of the departed soul of the deceased members. The Institute of Cost and Management Accountants of Bangladesh


activitiesactivitiesCBC News

Discussion on Professional Matters with the President, ICMAB Held on 23rd May 2015 at CMA Bhaban, Chittagong

CPD Program on "Financial Reporting Practices &Role of Accountants" Held on 23rd May 2015 at

CMA Bhaban, Chittagong

Chittagong Branch Council of the Institute of Cost and Management Accountants of Bangladesh (ICMAB) arranged a discussion program on 23rd May, 2015 with Chittagong based members of the Institute. Mr. A.S.M Shaykhul Islam, FCMA, President, ICMAB was preent in the program as Chief Guest. Mr. M. Mohiuddin, FCMA Past President, ICMAB attended the Program as Guest of honor. Address of welcome was given by Mr. Mohammed Nazmul Hoque, FCMA, Chairman, CBC.

A good number of Fellow & Associate members of Chittagong region of the Institute attended the discussion program. Among others, Mr. Md. Shafiqul Islam, FCMA, Mr. Mohammed Nurul Huda Siddiquee, FCMA, Qazi Meraz Uddin Arif, FCMA and Mr. Md. Anisuzzaman, ACA, ACMA spoke on the occasion. They draw the attention of the Chief Guest on various issues of ICMA & Chittagong Branch Council of ICMAB. In the discussion program Chairman & Secretary, CBC pointed out some important issues relating to education & examination syestem of the Institute.

The Chief Guest in his speech pointed out that, to ensure transparency and accountability in ICMAB, members of the institute can play a vital role. It is also their moral duty to ensure it. He also assured that he will extend all kind of support and cooperation for the development & welfare of Chittagong Branch.

Chittagong Branch Council (CBC) of The Institute of Cost and Management Accountants of Bangladesh (ICMAB) organized a CPD Program on 23rd May 2015 on the topic "Financial Reporting Practices & Role of Accountants" at CMA Bhaban, Agrabad, Chittagong. Mr. Mohammed Nazmul Hoque, FCMA Chairman, Chittagong Branch Council of ICMAB presided over the Program. Mr. A.S.M. Shaykhul Islam, FCMA President, ICMA Bangladesh was present on the occasion as chief guest. Mr. Ahmed Dawood, FCA, FCMA Past chairman, CBC & CRO, Chittagong Stock Exchange Ltd. presented the paper.


The Chairman, CBC in his welcome address highlighted the importance of the topic. A large number of Fellow & Associate members of the Institute at Chittagong region participated in the program. In his speech, the Chief Guest highly praised the initiative of ICMA and the role of its members to prepare financial statements according to IFRS. The ICMAB president congratulated the Chittagong Branch Council for its outstanding initiatives for the professional development & thereby upholding the image of the institute. Mr. Md. Shaifur Rahman Mazmumder, FCA, FCMA, Executive Director, Meenhar Group of Industries was present in the program as the Session Chairman. The whole program was nicely conducted by CBC Secretary, Qazi Meraz Uddin Arif, FCMA and Mr. Mohammed Nurul Huda Siddiquee, FCMA, Vice Chairman; CBC offered the vote of thanks.

Chittagong Branch Council (CBC) of The Institute of Cost and Management Accountants of Bangladesh (ICMAB) organized a CPD Program on the topic of "Proposed National Budget 2015-2016" on 13th June 2015 at CMA Bhaban, Agrabad, Chittagong.

Mr. Mohammed Nazmul Hoque, FCMA Chairman, Chittagong Branch Council of ICMAB presided over the Program. Mr. Muzaffar Ahmed, FCS, FCMA, Past President, ICMAB and President & CEO of Credit Rating Information and Services Ltd was present on the occasion as Chief Guest while Prof. Dr. Swapan Kumar Bala, FCMA, Treasurer, ICMA Bangladesh & Managing Director, Dhaka Stock Exchange Ltd. was present in the program as Special Guest. Mr. Mohammed Monoarul Hoque, FCMA Past Chairman, CBC & Director Finance, Asian University for Women, Chittagong presented the paper on the occasion.

The Chairman, CBC in his welcome address highlighted the various positive aspect of the Proposed Budget. A large number of Fellow & Associated Members of ICMAB at Chittagong region participated in the program.

In his speech, the Chief Guest highly praised the Government for submitting such large budget for the development of the nation. He also mentioned that more importance on E-Governance and political stability is necessary for the implementation of such investment friendly budget.

Mr. Md. Shaifur Rahman Mazmumder, FCA, FCMA, Executive Director, Meenhar Group of Industries was present as the discussant. He briefly discussed the Proposed Budget and mention various sector where Cost & Management Accountants can play their role for economic development of the country.

Mr. Mohammed Mohiuddin, FCMA, Managing Director, Island Securities Ltd. & Past President, ICMAB attend the program as Session Chairman. He appreciated the proposed budget for providing fund for Children for Chitmohal Peoples and various social safety programs for peoples of coastal areas.

The whole program was nicely conducted by CBC Secretary, Qazi Meraz Uddin Arif, FCMA. The vote of thanks was offered by CBC Vice Chairman Mr. Mohammed Nurul Huda Siddiquee, FCMA.

CPD Program on "Proposed National Budget 2015-2016"


activitiesactivitiesKBC News

A seminar on CMA profession and career development held on June 10, 2015 at CMA Bhaban, Sonadanga, Khulna. Mr. Naba Krishna Muni FCMA spoke in the seminar as the key resource parson. Mr. Ratan Kumar Debnath, FCMA, chaired the session. Fellow and Associate Members of ICMAB, Khulna, Professors of Azam Khan Commerce College, Khulna, bankers and huge number of the CMA students attended the seminar.

Remembering the great contributions of FCMAs in Khulna region, Mr. Naba Krishna Muni, FCMA started his deliberation on "CMA Profession and Career Development" before the members of KBC and teachers of Azam Khan Commerce College, Khulna and CMA students with deep regards to Haji Md. Monirul Islam, FCMA who pioneered the journey of KBC in 1989. At the very outset, he recalled the contributions of the Khulna based members who worked relentlessly to broaden base of the CMA profession in Khulna region. In his deliberation, he briefly described about the CMA profession since its birth in 1919. The CMA profession was started in the UK. It was noticed that conventional accounting system did not meet the demands to ascertain cost information for operations or products of factories engaged in producing goods required for military operations under the Ministry of Munitions during the First World War. Thus the first Cost Accounting Institute named The Institute of Cost & Works Accountants was established on April 18, 1919 immediately after the First World War.

In this subcontinent, ICWAI was established in 1944, in Kolkata after the Second World War, with Mr. M. Shoeb as the first President (1944-47). There is a funny relationship of war and founding of professional institutes of this profession. CIMA was established after First World War, ICWAI was established after Second World War, ICMAP was established after the civil war ended with the partition of India and ICMAB was established after the Liberation War of Bangladesh. Upon partition of India Mr. Shoeb migrated to Karachi, Pakistan. He joined certain other members of ICWA, (now CIMA) and formed PIIA (now ICMA Pakistan) and again he was the first President (1951-55). He became the Finance Minister of Pakistan and during his tenure Cost & Management Accountants Act 1966 was passed. It may be interesting to note some events from the history, ICWA, now CIMA was established in 1919. It was recognized by ICAEW only in 1944. In our own country Bangladesh we have seen recently, full of newspaper reports, how our Presidents struggled to uphold our place in FRA. Further back in the history see what Mr. Ruhul Quddus did. Soon after independence of Bangladesh there was a demand from some senior members of the profession to have only one Accounting body (ICAB) in Bangladesh. It was the strategy of Mr. Ruhul Quddus which saved us. Govt. of Bangladesh adopted Acts passed by Pakistan Parliament until those were replaced by Acts passed by Bangladesh Parliament. Mr. Ruhul Quddus pleaded that an Ordinance promulgated by the President cannot supersede an Act of Parliament. We were backed by the Act of 1966, it cannot be superseded by an Ordinance. We survived. The CMA profession will remain indebted to Mr. Ruhul Quddus for this contribution alone for ever. Without his strong defense, we would not exist today.

About CMA career development, there are live examples in front of us. Now CMA degree holders have been serving both nationally and globally. After the MOU signed between CIMA, UK and ICMAB in 2014, CMAs from Bangladesh are eligible to get CMA, UK degree by fulfilling few conditions and as a result, they

Seminar on CMA Profession and Career DevelopmentHeld on June 10, 2015 at CMA Bhaban, Khulna


can get world class CGMA (Chartered Global Management Accountant) degree. This is the CGMA career path way. CIMA has been operating in 196 countries in the world and now that door has been opened for us. The Chairman, Vice-Chairman, Secretary and Treasurer of Khulna Branch Council are the life examples. How to qualify CMA within the timeframe? In response to this question, Mr. Muni said that it's not a rocket science. Only need is to change the mindset. To reach the destination, you have to take help from the qualified CMAs, no other solution is known to me! Take advice and follow the path. That's it! He concluded with a heartfelt thanks to all present in the seminar. The Chairman of KBC handed over a token gift to the Resource Person and concluded the seminar with a vote of thanks to all.

Ifter and Doa Mahfil for the ICMAB and the NationHeld on June 26, 2015 at CMA Bhaban, Khulna

The Institute of Cost and Management Accountants of Bangladesh, Khulna Branch arranged an Ifter and Doa Mahfil on June 26, 2014 at CMA Bhaban, Sonadanga, Khulna. On the occasion doa was made for the development of the CMA profession as well as the Country and the Nation. Mr. Ratan Kumar Debnath, FCMA, Chairman KBC, Fellow and Associate Members of Khulna Branch, Principal and all departmental heads of Azam Khan Govt. Commerce College, Khulna officers and staff and a good number of students of Khulna Branch were present in the program. A discussion was also held on the importance of Holy Ramadan.

The ICMAB Council 2015

Mr. Abu Sayed Md. Shaykhul Islam FCMAPresident

Mr. Mohammed Salim FCMAMember

Mr. Arif Khan FCMAVice-President

Mr. Md. Abdur Rahman Khan FCMASecretary

Mr. Jamal Ahmed Choudhury FCMAVice-President

Prof. Dr. Swapan Kumar Bala FCMATreasurer

Mr. Muzaffar Ahmed FCMAMember

Mr. M. Abul Kalam Mazumdar FCMAMember

Prof. Mamtaz Uddin Ahmed FCMAMember

Mr. A.K.M. Delwer Hussain FCMAMember

Mr. Md. Mamunur Rashid FCMAMember

Mr. Md. Munirul Islam FCMAMember

Mr. Shawkat Ali WaresiMember

Mr. A R M Nazmus SakibMember

Mr. Sushen Chandra DasMember

Mr. Muhammed Ahsanul JabbarMember

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