Finalised

Disclosure Level and Compliance with IASs of Non-financial Companies in an Emerging

Economy: A Study Bangladesh

Dr. Monirul Alam Hossain Department of Accounting and MIS University of Hail P.O. Box 2440 Hail, Kingdom of Saudi Arabia. Tel: +966568533567 FAX: +966-6-531-0500 E-mail: monirulhossain@yahoo.com or mahossain108@hotmail.com

Final Draft Submitted for the presentation in the Asian Academic Accounting Association Conference 2006, Sydney (17Th – 19th September)

2

Disclosure Level and Compliance with IASs of Non-financial Companies in an Emerging

Economy: A Study Bangladesh

Dr. Monirul Alam Hossain*,

Abstract Compliance with accounting or financial reporting standards promulgated by International

Accounting Standards Board (previously IASC) has become a crucial issue of the day after a

series of corporate debacles over a decade. Regulators, professional bodies and researchers

around the globe have expressed their concerns about the need for improved accounting and

audit pronouncements and compliance for providing better information than previously required

for the preparation and presentation of corporate financial statements. The present study

primarily focuses on the extent of corporate disclosure based on two International Accounting

Standards adopted in Bangladesh. An index consisting of 53 forms of information was

constructed on the basis of the requirements of two important IASs (IAS-1 and IAS-16). Annual

reports of 106 Bangladeshi manufacturing and trading companies non-financial in nature have

been examined for the year ending 2001-2002. The results showed that the listed non-financial

companies significantly followed the selected accounting standards under review and did bring

remarkable changes in the financial reporting practices made by the listed companies in

Bangladesh. The study also attempted to examine empirically the association between a number

of corporate attributes and levels of disclosure in corporate annual reports of listed non-financial

companies in an emerging economy, Bangladesh. The association between the extent of

disclosure and various corporate characteristics was examined using multiple linear regression

models. It was found that net profit margin of Bangladeshi companies and subsidiary of a

multinational company was significantly associated with the extent of disclosure as per sample

accounting standards.

Key Words: Accounting Standards, Compliance, International Financial Reporting

Standards, Corporate Attributes, International Accounting Standards Board,

Corporate Governance, Transparency, Bangladesh

*Department of Accounting and MIS, University of Hail, P.O Box- 2440, Hail, Kingdom of Saudi Arabia.

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Disclosure Level and Compliance with IASs of Non-financial Companies in an Emerging

Economy: A Study Bangladesh

1. Introduction

The stated objective of establishing the IASC was to pronounce a set of accounting standards for

the member countries with a view to facilitating relevant, reliable, adequate and uniform

disclosure of accounting information in the financial statements of the enterprises under its

global umbrella. Since its inception in 1973, IASC has subsequently taken the name, spell this

out IASB. As the IASB made the transition to adulthood, its focus has become harmonisation of

financial reporting irrespective of geographical boundaries. This change in focus is due to

globalisation, or the multi-nationalisation of companies, has increased the volume of economic

exchanges across nations. The most recent spate of corporate collapses has thus place an

increased mantle of responsibility on the shoulders of the IASB. International Accounting

Standards (IASs) are commonly known now as International Financial Reporting Standards

(IFRSs). In 2001, supported by industry and governments throughout the world, and modeled

after the Financial Accounting Standards Board (FASB) in the U.S., the IASB was created with a

mandate to produce a single set of high-quality, understandable, and enforceable International

Financial Reporting Standards (Jermakowicz and Gornik-Tomaszewski, 2006). The IFRS

include existing IASs issued by the IASC as well as Standards the IASB issued. In 2002, the

Financial Accounting Standards Board (FASB) and the International Accounting Standards

Board (IASB) co-signed the Norwalk Agreement, pledging to work toward a single set of high-

quality global accounting standards. Since that time, the two organizations have joined forces in

drafting several new and updated standards (Gupta, Linthicum, and Noland, 2007) In 2005, the

Securities & Exchange Commission's (SEC) in the USA published a roadmap for the possible

elimination of the reconciliation of International Financial Reporting Standards (IFRS) to US

Generally Accepted Accounting Principles.

If the enterprises within IASB member countries do not comply with the promulgated accounting

or financial reporting standards, global harmonisation will not be achieved. Professional

accounting bodies of the member countries have joined with the IASB to achieve its objectives

by calling for voluntary adoption or, where necessary, legal backing of international standards

and practices. The Institute of Chartered Accountants of Bangladesh (ICAB) and The Institute of

Cost and Management Accountants of Bangladesh (ICMAB) are members of IASB. But it is

alleged that the role of these two bodies in the standard setting process and their implementation

are not in equal in magnitudes. Owing to lack of legal backing, compliance with IASs remains at

voluntary level until those become mandatory very recently by Securities and Exchange

Commission (SEC) for the listed companies of Bangladesh. The present study opts for

empirically examining the following aspects:

(a) Standard setting and implementation process and inherent setbacks leading to non-

compliance

(b) The extent to which the listed non-financial companies in Bangladesh follow IASB

4

Accounting Standards;

(c) The extent of disclosure for each of the items of information in its group as well as the

overall grouping; and

(d) Whether there is any association between a number of corporate attributes and the levels

of disclosure ( as per accounting standards) in corporate annual reports of the sample

companies

2. Socio-Economic Settings and Development of Accounting Standards

Compliance with International Accounting Standards depends upon the politico-economic

settings prevalent in a country. Most of the developing countries' industrialization, political

institutions and culture are largely influenced by the socio-political tradition and philosophy of

the colonial power by which they were ruled and therefore, the development of accounting

standards in the developing countries is not an exception to this (Perera; 1989). Accounting

development patterns of most developing countries are either imposed through colonial influence

or by powerful investors or Multinational Companies (MNCs) (Chandler and Holzer; 1984;

Beclkaoui; 1985 and Hove; 1986). Samuels and Oliga (1982) while evaluating accounting

standards in developing countries argue that where economic, socio-political, cultural and

contextual differences between countries, nations and societies exists, there is a problem of

appropriate accounting standards. They argued that there are both conceptual and practical

problems that expose the futility of harmonisation of accounting standards. Hove (1986)

identified four vehicles (i.e., colonial rule, operations of transnational corporations, professional

accounting institutions and the special conditions in foreign aid agreements) by which

accounting technology was imposed by the developed countries on the developing countries. In

many countries, of course, the British influence has had very long standing and this has impacted

on the development of accounting standards.

Bangladesh inherited its politics and large parts of law and administrative structure from the

British. As a part of India, Bangladesh was ruled over by the British for about 200 years until

1947 and then 25 years by Pakistan until 1971. As a matter of fact, the country started with the

lingua franca “bottomless basket” immediately after the liberation in 1971. Over the years the

country has traversed through the vicious circle of poverty. Lack of governance and dependence

on development aids are claimed to have had a far reaching impact on the socio-economic

development of the country. Rahman and Jannah (2003) in a joint initiative taken by the World

Bank and IMF drawing on “Reports on the Observance of Standards and Codes (ROSC) took a

snap-shot of the real socio-economic characteristics of Bangladesh:

“Despite sustained domestic and international efforts to improve economic and

demographic prospects, Bangladesh remains poor. The country has a population of about

133 million within a geographic boundary of 143,998 square kilometers (56,160 square

miles). Although more than half of the gross domestic product (GDP) is generated through

the service sector, nearly two-thirds of the population are employed in agriculture. Major

impediments to growth include frequent natural disasters, inefficient state-owned

enterprises, inadequate infrastructure, weak private and foreign investments, and slow

implementation of economic reforms. Weak national financial architecture, inadequate

transparency and accountability, and a dearth of appropriate policy interventions are

among the impediments cited for the country’s slow economic development.”

5

Despite enormous bottlenecks, Bangladesh has been striving to rise above the curses of poverty

and exhibits similar characteristics to other developing countries. These characteristics can be

seen in the setting of accounting standards and compliance.

The accounting profession in Bangladesh evolved in the British tradition of self regulation and

professional ethics. Its root can be traced to 1850 when the first Companies Act was enacted in

India (Nicholls and Ahmed, 1995). There is no independent standard-setting organisation in

Bangladesh like the FASB in the U.S.A., the ASB in the UK or the AASB in Australia For

instance, the Australian Accounting Standards Board (AASB) under the oversight of the

Financial Reporting Council (FRC) issues Australian Accounting Standards by way of adopting

accounting or financial reporting standards issued by the International Accounting Standards

Board (Deegan 2005). In Bangladesh, the Institute of Chartered Accountants of Bangladesh

(ICAB) has the sole authority to adopt IASs. ICAB was established in 1973 and became a

member of the International Accounting Standards Committee (IASC) in 1977 and began to

issue Bangladeshi Accounting Standards (BASs). International Accounting Standards (IASs)

were adopted in 1983. The Institute of Cost and Management Accountants of Bangladesh

(ICMAB) established in 1977 is also a member of the IASC. However, the ICAB never invited

the ICMAB to join in the standard-setting process and implementation of accounting standards.

Rather, the ICAB tends to consider the ICMAB as a rival institute and, therefore, does not

include it in the adoption and implementation of national accounting standards. This type of

„negative attitude‟ on the part of the ICAB is very harmful and does little to ensure the

enforcement and compliance of national accounting standards in Bangladesh. Apart from this,

there are many company accountants who are not members of the ICAB but are engaged in the

preparation of company financial statements. These company accountants are not likely to follow

the international accounting standards in the preparation of Company Annual Reports (CARs)

where company management has a reservation about following accounting standards. To add to

this melancholy situation, the Bangladesh Accounting Standards (BASs) adopted by ICAB have

no legal backing for compliance.

In October 1997, the Securities and Exchange Commission (SEC) for the first time required

listed companies to follow IASs and International Standards on Auditing (ISAs) as adopted by

the Institute of Chartered Accountants of Bangladesh (ICAB).

In February 2000, the SEC issued

a new rule on the format of audit reports specifying that auditors will verify that the financial

statements have been prepared in accordance with IAS and the audit has been carried out in

accordance with ISA. The SEC claims that its February 2000 rule on audit reports has mandated

full compliance with IAS, although this requirement does not appear to have the force of law

(Rahman and Jannah 2003). The problem is that the rule does not include implementation

guidelines. More over, gaps exist between Bangladesh Accounting Standards and International

Accounting Standards. The ICAB has developed 16 BASs on the basis of IASs. However, as

revised IASs are issued, the BASs are not updated. Moreover, other IASs/IFRS have no

counterparts in BAS. For non-listed companies, financial reporting formats and disclosure

requirements set by the Companies Act 1994 are mandatory. These requirements are not

consistent with IASs. Thus, the Companies Act 1994, framed in the light of British Companies

Act 1913, remains the principal law affecting compliance.

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3. Compliance of Accounting Standards Debate in the Existing Literature

There is a plethora of studies of financial reporting. This section reviews research on compliance

with accounting standards. One of the main purposes of financial statements is to provide more

comparable data about the business enterprise. Accounting standards assist the preparation of

financial statements and comparability of enterprise data in at least four ways: mandating a

specific presentation format, compelling an explicit measurement technique, ensuring an

increasing level of disclosure, and requiring the disclosure of additional information (Cairns

1995). Christopher and Islam (1999) have pointed out that developing countries increasingly

need sophisticated accounting standards as their economies grow and become more complex.

There is evidence that a number of developing countries have not even adopted the IASs as the

basis of their domestic accounting standards (Christopher and Islam, 1999). Furthermore, they

mentioned that some developing countries have developed their accounting standards at variance

with the IASs (e.g., Brazil, India, Mexico, Saudi Arabia, South Africa, Swaziland and

Yugoslovia).

Parry and Khan (1984) carried out a study of published annual reports of 74 entities in

Bangladesh. Their major findings were that reports were generally informative and complied

with legal requirements, but no attempt was taken to comply with IASs. Similar findings were

found in another study undertaken by Parry (1989). Toha (1986) has made an empirical study of

the practical application of IASs in Bangladesh. He found that the application of IASs in

Bangladesh is very limited. Although in some cases there is compliance with IASs, compliance

with disclosure aspects of IASs is very much weak. As a result, he opined that proper

amendment in the Companies Act should be implemented.

Alam (1989) found serious drawbacks in the provisions of the Companies Act, 1913 (currently

the Companies Act 1994) relating to financial statements. He commented that in Bangladesh, the

statutory requirements for the disclosure of accounting information are inadequate. As a result,

development of accounting standards by considering the local national needs or compliance with

the International Accounting Standards may be given utmost consideration. He suggested that

the adopted IASs should be incorporated into legislation to overcome the drawbacks of the

Companies Act. In another study Alam (1990) found that about 10 percent of the companies in

Bangladesh fulfilled the 1987 requirements of the Securities and Exchange Rules. However, due

to the inadequacy of the Companies Act and the Securities and Exchange Rules, 1987, ICAB

adopted Accounting Standards that cover most of the important accounting standards. Alam

commented that the application target of the standards could not be achieved due to the lack of

enforcement power in that it requires special attention of the Government of Bangladesh in

revising the existing Companies Act, 1913. Our observations suggest that the Companies Act

1913 that was enacted by the British legislators in the sub-continent has been repealed by the

enactment of the Companies Act 1994 in Bangladesh without mentioning anything about

compliance with IASs.

Azizuddin (1991) while reviewing the accounting and auditing standards of the South Asian

Federation of Accountants (SAFA) opined that the countries should urge upon the national

government the need for the creation of machinery (a separate standard-setting agency) that will

be authorised to develop and promulgate accounting standards. Hye (1992) suggests that even

7

though the Institute of Chartered Accountants of Bangladesh (ICAB) through its Technical and

Research Committee is adopting International Accounting Standards (IASs), the implementation

thereof could not be ensured for want of legal backing. He maintains that in spite of the

recommendation of the ICAB, the picture depicted by published accounts is not satisfactory at

all.

Hossain (2000) while discussing harmonisation of accounting standards world-wide mentioned

that the accounting standards in Bangladesh are voluntary in nature. He argued that without

statutory backing of accounting standards making compliance mandatory, the harmonisation of

accounting standards in Bangladesh will be a dream never to be achieved. Hossain argues that

unless and until compliance with IASs in Bangladesh is mandatory for the preparers and auditors

of financial statements, it is not possible to have a harmonized financial reporting system within

Bangladesh. Accordingly, Hossain argued that the provisions of the Pakistani Companies

Ordinance Act 1984 requiring mandatory compliance with IASs should be incorporated into the

Bangladesh Companies Act 1994.

Rahman and Jannah (2003) found “compliance gaps” that demonstrate serious weaknesses in

corporate financial reporting. Compliance gaps were also revealed by a review of published

financial statements, conducted by World Bank consultants. The review involved an examination

of 46 sets of financial statements of major listed companies, including 8 banks and 3 insurance

companies; and interviews with experienced corporate accountants, practicing auditors,

academics, professional bodies, and regulators. The financial statements of these companies

make claims to have been prepared in accordance with both BASs and IASs. Since the SEC of

Bangladesh mandated the use of IAS by listed companies, the checklist used for determining

compliance included selected IAS requirements as benchmarks. In general, the added, actual

accounting and disclosure practices in Bangladesh fall far short of the applicable requirements.

There study revealed that it is very common for the listed sample companies not to comply with

the IAS requirements on consolidation; many companies‟ financial statements did not include

this; most companies that apparently had business segments and geographical segments did not

comply with the segment reporting requirements; export receivables were disclosed at the

exchange rate prevailing on transaction date instead of balance sheet date as required by IAS;

detailed disclosures in accordance with IAS requirements were not found in any sets of financial

statements; in cases where fixed assets were revalued, detailed disclosures required under the

IAS were not available; many companies disclosed the existence of employee pension benefits

but failed to disclose information required by the relevant IAS; many companies did not disclose

the amount of dividend per share and earnings per share; and non-compliance were also found

about prepaid expenses, taxation. Contingencies, leases, interim reports.

Benjamin et al. (1990) examined the quality of disclosure in the corporate annual reports of 76

listed companies in Hong Kong for the years 1984, 1985 and 1986. They examined significant

areas of non-compliance of financial statements with the Companies Ordinance and Securities

Ordinance of Hong Kong, and departures from the Statements of Standard Accounting Practices

(SSAPs) issued by the Hong Kong Society of Accountants (HKSA). They also reviewed whether

non-compliance was closely related to the size of the listed companies, the nature of the listed

companies and the size of the auditing firm. Their analysis of the annual reports revealed major

departures from the disclosure requirements of the Companies Ordinance, Security Ordinance and

the HKSA‟s requirements. They found that non-compliance with disclosure requirements is closely

8

related to the company size12

. However, they did not find any significant association between

departure from disclosure requirements and size of auditing firms. The main reasons behind non-

compliance with disclosure requirements were found to be difficulties in interpreting disclosure

requirements and auditing guidelines; insufficient awareness of general accounting concepts; lack of

proficiency of staff; management intention to "improve" the appearance of the companies' financial

position and results of operation; and lack of resources to keep abreast of changes in the disclosure

requirements.

For the reduction of non-compliance of disclosure requirements, they suggested that the directors'

report should be reviewed by the auditors for reasonableness and consistency with other financial

information and certain punitive measures should be instituted against company directors for wilful

departures from a checklist incorporating all the disclosure requirements which should be updated

periodically and whenever new disclosure requirements were promulgated.

Hauworth (1986) stated the problems in the development of world wide accounting standards.

There are the diversity of views regarding the purpose of financial statements, differences in the

extent of development accounting professions, impact of tax laws on financial reporting, varies

nature of the requirements of companies laws, difference in basic economic facts of the

countries, lack of professional announcements and efforts for world-wide accounting standards

(Hauworth, 1986). He suggested that world-wide accounting standards can be developed only

when there is agreement on the objectives of financial statements and there is knowledge of the

basic economic facts of the countries. Briston and Liang (1990) highlighted that Singapore

Society of Accountants (SSA) has adopted International Accounting Standards. Although

Singapore followed the trend found in many British colonial territories, still companies‟

legislation based mainly on the U.K. Companies act but since independence other sources of

influence are found. Samuels and Oliga (1982) while evaluating accounting standards in

developing countries argues that where economic, socio-political, cultural and contextual

differences between countries, nations and societies exists, there is problem of appropriate

accounting standards. They argued that there are both conceptual and practical problems that

expose the futility of harmonisation of accounting standards. The IASs are meant to apply to

companies within a country whether or not they are multinationals. Therefore, they suggested

that priority must be given to the needs of developing countries in fixing up the feasible

accounting standards.

Taylor and Jones (1999) examined where and how companies that purport to be using

International Accounting Standards (IAS) are referring to IAS in their financial statements. They

found that all firms referred to IAS in the footnotes but referred to IAS in the audit report just

under 50% of the time. Their study revealed that the largest group of companies uses a

combination of home-country and IAS standards and a significant number of firms report the use

of IAS standards with exceptions. Referencing IAS with home country standards or exceptions

reduces comparability and transparency of financial statements. Further, the International

Accounting Standards Committee (IASC) is referenced as the source of IAS in about half of the

cases. El-Gazzar et al. (1999) examined the underlying motivations and characteristics of firms

complying with IAS. This study is of special interest to the International Accounting Standards

Committee (IASC) for assessing the merits of mandating IAS by multinational firms and helps

1.Benjamin et al. (1990) suggested that larger firms will tend to provide fuller financial disclosure and therefore

cause less non-compliance.

9

accounting researchers in understanding the disclosure behaviour of multinationals. Their results

indicated that the magnitude of a firm‟s foreign operations, its financing policy, membership of

certain geographical and trade blocks in the European Union (EU), and multiple listing on

foreign stock exchanges are significantly associated with multinationals‟ compliance with IAS.

Compliance with accounting or financial reporting standards promulgated by International

Accounting Standards Board (previously IASC) has become a crucial issue of the day after a

series of corporate debacles over a decade, and regulators, professional bodies and researchers

around the globe have expressed their concerns about the need for improved accounting and

audit pronouncements and compliance for providing better information than previously required

for the preparation and presentation of corporate financial statements (Hossain, Cooper, and

Islam, 2006). It has already argued that he IASB was established to develop a single set of

enforceable accounting standards that can be applied internationally (Street and Gray 2001). Due

to the efforts provided by the IASB, IOSCO, IFAC and other international bodies, a number of

developing (and developed) countries have adopted IASs/IFRSs as issued by the International

Accounting Standards Board (IASB) either wholly or with minor, modifications (Ali, 2005).

Saudagaran and Diga (1997) and Frost and Ramin (1997) found significant variation in

accounting disclosure practices within and across countries although accounting disclosures are

required by most countries and IAS 1, Presentation of Financial Statements (Ali, 2005).

Therefore, the compliance provides an avenue to researchers to empirically examine the level of

compliance in countries whose national standards are based on IASB standards. The researchers

in International accounting emphasize the importance of compliance with IASs/IFRSs as a

significant element in the quality of financial reporting practices.

Hassan Mahmud (1993) tried to determine the factors that have shaped the corporate financial

reporting practices in Bahrain. He argued that prior researchers have offered two explanations,

environmental factors and cultural importation, for the emergence of financial reporting

practices in developing countries. The researcher observed that Bahrain provided an excellent

environment in which to examine the two explanations since its public and closed corporations

have similar economic characteristics. Only public corporations are legally required to publish

financial reports.

The environmental explanation suggests that a nation's financial reporting practices will be

shaped by its socioeconomic structure while the cultural importation explanation states that the

desire for international legitimacy creates incentives for developing nations to adopt Western

financial reporting practices (Hassan Mahmood; 1993). Hassan Mahmood (1993) posited that

public corporations would try to gain legitimacy for their published reports by adopting Western

standards, while closed corporations would not have a similar incentive. The analysis of (Hassan

Mahmood; 1993 supported prior researchers' findings that colonialism, the need for international

legitimacy, and international audit firms were important factors in gaining acceptance for

Western accounting practices. The adoption of Western financial reporting practices may be

dysfunctional to a developing nation like Bahrain if these practices do not provide relevant

information about corporate performance. Therefore, Bahrain, as well as other developing

countries, needs to proceed cautiously before adopting Western corporate reporting practices.

10

There are a few studies that examined the association between firm characteristics and the level

of compliance with IFRSs and some studies observed that firm characteristics were positively

associated with compliance, whereas others showed inconclusive results, demanding more

research (Ali, 2005). Al-Basteki (1995) examined the extent to which Bahraini publicly traded

corporations adopt international accounting standards, and he found that the majority of the

Bahraini publicly traded corporations reported adoption of IASs.

Leimoni (1996) has found that there is an absence of well-defined reporting practices and

procedures whereby such requirements, whether statutory or legal are strictly followed and

enforced. Leimoni (1996) has argued that an attempt at improving the quality of accounting in

Tonga, as a source of information function, would require a research study to accurately

determine the country's needs, and the role of accounting in the country's economic development

process. He commented that this is very important because there is a lack of awareness in all

sectors of the economy of the role and the potential contribution that accounting can offer in the

economic development effort. The purpose of the study of Leimoni (1996) is to explore the role

of accounting and accountants in the economic development process of Tonga. His study

revealed that accounting development in Tonga is a direct product of its environment with

cultural influences as the major contribution to the prolonged non-existence of any accounting

standards. The study of Leimoni (1996) revealed that accounting has a positive role to play in

the economic development of Tonga which is evident in the need for reliable and timely data for

the preparation of financial statements, allocation of resources, and improvement in the use of

existing resources. Leimoni (1996) argued that the economic development of Tonga is dependent

upon the ability of the government and accountants to develop accepted national accounting

standards that are fully recognised and enforce by law.

Owusu-Ansah (1998) measured the degree of influence of eight corporate attributes on the extent

of mandatory disclosure and reporting of forty nine listed companies in Zimbabwe. Using a

disclosure index of 214 mandated information items, the extent of mandatory disclosure by each

sample company was quantified and was used with other data specific to each sample company

to test the relational hypothesis. The analysis of his multivariate regression models showed that

company size, ownership structure, company age, multinational corporations‟ affiliation, and

profitability have statistically significant positive effect on mandatory disclosure and reporting

practices of the sample companies were reported. However, the quality of external audit,

industry-type and liquidity were found not to be significant statistically.

Kamran and Courtis (1999) integrated prior disclosure studies and identified the underlying

factors that moderated the apparent variation in results in the previous study based on Disclosure

Index Approach. They have used a meta-analysis of 29 studies that confirmed significant and

positive relationships between disclosure levels and corporate size, listing status and leverage.

However, they did not fond any significant association found between corporate profitability or

size of audit firm, with aggregate disclosure levels.

Tower, Hancock and Taplin (1999) examined the extent of compliance with International

Accounting Standards (IAS) in six countries in the Asia-Pacific region. By providing evidence as

to the level of compliance with IAS in financial statements, this study also indicates the extent of

de-facto harmony. The paper also examines various determinants of compliance with IAS and

11

finds that country of location remains the clear driving force. Street, Gray and Bryant (1999)

reported on an empirical study of the accounting policies and disclosures of a sample of major

companies from around the world claiming to comply with IASs in 1996. Their findings revealed

significant non-compliance with IASs including: use of LCM for inventories; violation of the all-

inclusive requirement for reporting profit/loss and of the strict definition of extraordinary items;

failure to capitalize certain development costs; failure to provide all required disclosures for

property, plant, and equipment, particularly those associated with revaluations; failure to comply

with pension disclosure requirements; for companies operating in hyper-inflationary economies,

failure to restate foreign entities in accordance with IAS 29; and charging goodwill to reserves or

amortizing goodwill over a period in excess of the 20 year limit. They commented that the non-

compliance, as evidenced and as IAS 1 Revised becomes effective for 1999 financial statements.

Donna and Bryant (2000) investigated the extent to which the disclosure requirements of the

IASC are complied with or exceeded for companies claiming to use International Accounting

Standards (IASs). In addition, the research seeks to identify significant differences between those

companies with US listings, US filings, and those with no US listings or filings with regard to (1)

compliance with IASC-required disclosures, and (2) level of disclosure (including both

mandatory and voluntary items). Their findings revealed that the overall level of disclosure is

greater for companies with US listings. Their results showed greater disclosure is associated with

an accounting policies footnote that specifically states that the financial statements are prepared

in accordance with IASs and an audit opinion that states that International Standards of Auditing

(ISAs) were followed when conducting the audit. Further, the findings indicate that the extent of

compliance with IASs is greater for companies with US listing or filings. The statistical analyses

provided a higher level of compliance is associated with an audit opinion that states the financial

statements are in accordance with IASs and ISAs were followed when conducting the audit. The

findings of this study indicated that enforcement of IASs may be less of an issue for companies

with listings and filings in the US. However, for companies without US listings and filings,

compliance is indeed of great concern.

Saudagaran and Diga (2000) examined the principal features of the institutional environment for

financial reporting in an economic bloc of emerging economies - the Association of Southeast

Asian Nations (ASEAN). The principal features are highlighted of the institutional structure of

financial reporting regulation in these countries to find out how these features impact on and are

affected by several issues is discusses, particularly the limits of private sector participation in

regulatory affairs, and the need to improve the enforcement in these countries (Saudagaran

and Diga; 2000). After reviewing the international dimensions of financial reporting regulation

in ASEAN, they have considered whether ASEAN's institutional arrangements provide an

auspicious environment in which to pursue accounting harmonization.

Some studies have shown a higher degree of compliance. For example, Owusu Ansah (2000)

empirically examined the degree of compliance with mandatory disclosure requirements in

Zimbabwe. His results indicated a high level of compliance in respect of IASs 2, 4, 7, 8, and 19,

and a full compliance was also observed with respect to IAS 18. In contrast, there were several

instances of non-compliance in IASs disclosure, including IASs 10-12, 14, 16, 17, 21-23, and 26-

28. His results suggested that the mechanism for monitoring and enforcing corporate mandatory

disclosure requirements in Zimbabwe is not stringent (Owusu Ansah, 2000 cited in Ali, 2005).

12

Another study similar to Owusu Ansah (2000) was made by Chamisa (2000) in the context of

Zimbabwe. He examined the extent of compliance with IASC/IFRSs standards by a sample of

Zimbabwe listed companies. The study tried to assess the compliance level before and after the

publication of the first 22 standards issued by the IASC, except for IAS 1 issued in 1975. The

study showed that the listed companies in Zimbabwe voluntarily and significantly complied with

certain provisions of IASs that has provided indirect evidence that IASs are relevant in

Zimbabwe.

Hollis Ashbaugh and Morton Pincus (2001) investigated (1) whether the variation in accounting

standards across national boundaries relative to International Accounting Standards (IAS) has an

impact on the ability of financial analysts to forecast non-U.S. firms‟ earnings accurately, and (2)

whether analyst forecast accuracy changes after firms adopt IAS. IAS are a set of financial

reporting policies that typically require increased disclosure and restrict management‟s choices

of measurement methods relative to the accounting standards of the sample firms‟ countries of

domicile. Hollis Ashbaugh and Morton Pincus (2001) developed indexes of differences in

countries‟ accounting disclosure and measurement policies relative to IAS, and document that

greater differences in accounting standards relative to IAS are significantly and positively

associated with the absolute value of analyst earnings forecast errors. Further, their study showed

that analyst forecast accuracy improves after firms adopt IAS. They found that after controlling

for changes in the market value of equity, changes in analyst following, and changes in the

number of news reports, the convergence in firms‟ accounting policies brought about by

adopting IAS is positively associated with the reduction in analyst forecast errors.

Chong, Tower and Taplin (2001) examined accounting harmonisation and determinants

explaining accounting measurement policy choice decisions by Asia-Pacific listed manufacturing

companies. Using Thomas‟ (1991) theoretical framework, four contingent variables (country of

reporting, company size, profitability and debt leverage) were examined as possible determinants

of firms‟ accounting choices concerning non-current asset valuation measurement base, goodwill

and depreciation. 130 listed manufacturing companies‟ annual reports were examined from

Australia, Hong Kong, Indonesia, Malaysia and Singapore. Their study involves two phases. The

first phase evaluates accounting harmonisation measurement indices in comparison with the

extant literature. An important innovation is the operationalisation of Archer et al. (1995)

between-country and within-country C indices. Their results indicated variations in the level of

harmony across the five countries for all three accounting measurement practices. The second

phase of their study employed logistic regression to examine possible determinants of accounting

policy choice decisions. Such a combined research approach should lead to a better

understanding of de facto accounting harmonisation and practices. Additionally, their results

indicated that country of reporting, company size, profitability and debt leverage are important

variables influencing listed manufacturing companies‟ accounting policy choice for accounting

measurement policies.

Hooks, Coy and Davey (2002) developed a disclosure index that was and applied to the annual

reports of the 33 electricity retail and distribution companies which comprise the entire industry

in New Zealand. The index was developed using the ideas and opinions of 15 experts

representing broad stakeholder groups. They compared the resulting scores for the extent and

quality of each index item with the level of importance of those items as stated by the panel, and

found that many items were not adequately disclosed, resulting in an information gap between

13

stakeholders' expectations and the disclosures provided by the electricity companies. Singleton

and Globerman (2002) have proposed that the use of a disclosure index averaged over several

years would reduce the likelihood of measurement error, it is less clear that measurement errors

are contributing to any bias in the results.

Joshi and Ramadhan (2002) examined the level of adoption of IASs in Bahrain by closely held

companies and they found that 86 percent (31) of the 36 companies responding to the

questionnaire applied IASs in the preparation of their financial statements, while only five firms

followed the US or UK GAAP. Despite the fact that the degree of adoption varied considerably

from one standard to another, their evidence showed that all the surveyed firms adopted IAS 4,

Depreciation Accounting and IAS 13, Presentation of Current Assets and Current Liabilities, and

about 90 percent of the respondents fully agreed that IASs help to achieve the objectives and

improve the effectiveness of financial reporting.

Hussain, Islam and Maskooki (2002) has made an attempt to investigate the accounting

standards followed by the financial institutions in five selected GCC countries (Bahrain, Saudi

Arabia, Oman, Qatar and the United Arab Emirates) with some policy prescriptions for

harmonisation of the accounting regulations. Their study provides a comparative analysis of

various accounting policies and practices, including loans and provisions, assets, investments,

taxation, liabilities, foreign exchange, revenue recognition, and consolidation of each GCC

countries banking and other financial institutions.

Abd-Elsalam and Weetman (2003) assessed the effect of relative familiarity and language

accessibility on the International Accounting Standards (IASs) disclosures when IASs are first

introduced in an emerging capital market (Egypt) based on the annual reports of listed non-

financial companies. They used a disclosure index measurement to a sample of listed company

annual reports and evaluated relative compliance with IASs in relation to corporate

characteristics. The result of Abd-Elsalam and Weetman (2003) study showed that for relatively

less familiar requirements of IASs/IFRSs, the extent of compliance is related to the type of audit

firm used and to the presence of a specific statement of compliance with IASs. However, they

observed a lower degree of compliance with less familiar IASs disclosure consistently across a

range of company characteristics.

The study of Abd-Elsalam and Weetman ( 2003) assesses the effect of relative familiarity and

language accessibility on the International Accounting Standards (IASs) disclosures in an

emerging capital market. Their study focuses on the annual reports of listed non-financial

companies in Egypt when IASs were first introduced. A disclosure index measurement to a

sample of listed company annual reports was used by the researchers for evaluating relative

compliance with IASs in relation to corporate characteristics. The results of the study shows that

for relatively less familiar requirements of IASs, the extent of compliance is related to the type of

audit firm used and to the presence of a specific statement of compliance with IASs while a

lower degree of compliance with less familiar IASs disclosure is observed consistently across a

range of company characteristics ( Abd-Elsalam and Weetman, 2003).

Al-Razeen and Karbhari (2004) investigated the interaction between the compulsory and

voluntary disclosures in the annual reports of Saudi Arabian companies. The sample comprises

both listed and non-listed companies. They have constructed three separate disclosure indices

14

relating to mandatory disclosure, voluntary disclosure that closely relates to mandatory

disclosure, and voluntary disclosure that is not closely related to mandatory disclosure. Their

results revealed that there is a significant, positive correlation between mandatory disclosure and

voluntary disclosure related to the mandatory disclosure index. Al-Razeen and Karbhari (2004)

found that the relationship of correlation between voluntary disclosure and the other two indices

is found to be weak and not significant. They opined that these weak relationships suggested an

absence of effective co-ordination between the parties involved in preparing the annual report.

Further the study of Al-Razeen and Karbhari (2004) revealed that there is no clear pattern of

relationships to exist between mandatory disclosure and the types of disclosure in the different

industrial sectors in Saudi Arabia.

Yan (2004) examines the value relevance of accounting information in seven Asian countries:

Hong Kong, Malaysia, Singapore, Thailand, Indonesia, the Philippines and Korea, as well as in

country groups and subgroups based on legal origins: the common-law group and the civil-law

group (with subgroups of French origin and German origin). The results of Yan (2004) showed

that the value relevance of accounting information tends to be greater for countries with higher

overall ranking. His analyses indicate that value relevance is affected by country-specific factors

such as accounting measurement rules, financial reporting systems and institutional factors.

Finally, the results are useful for international and domestic accounting standard setters

addressing standards harmonization.

Ali (2005) synthesizes the empirical studies on harmonization of accounting and reporting

practices and compliance with international financial reporting standards (IFRSs) which have

been extensively discussed and debated in the international accounting literature based on

mainly empirical studies. His overall findings of the paper suggest that although some progress

has been achieved, there is still a lack of measurement and formal harmonization among

countries throughout the world including emerging economy.

Ashraf and Ghani (2005) in their study examine the origins, growth, and the development of

accounting practices and disclosures in Pakistan and the factors that influenced them. The

researchers have traced the early days of accounting in the Indian subcontinent and discuss the

British colonial influence. In addition, they examined the development of accounting in Pakistan

through three eras: Independence through 1971, Post 1971-1984, and 1984 to present. Their

study described how the colonial past and later the international financial institutions such as the

Asian Development Bank and the International Monetary Fund played key roles in shaping

accounting and reporting practices of the country. Pakistan's adoption of International Financial

Reporting Standards as national standards has not led to improvement in the quality of financial

reporting. Ashraf and Ghani (2005) argued that Pakistan, even though classified as a common

law country in literature, exhibits most of the properties of code law countries. They concluded

that lack of investor protection (e.g., minority rights protection, insider-trading protection),

judicial inefficiencies, and weak enforcement mechanisms are more critical to explaining the

state of financial reporting in Pakistan than are cultural factors. This insight has policy

implications for developing countries that are making efforts to improve the quality of the

financial reporting of their business entities.

Islam (2006) empirically investigated the compliance with disclosure requirements by some

South Asian Association for Regional Cooperation (SAARC) countries and to explore the

15

possibility of standardization of accounting practice in the SAARC region. The reports of the

sample manufacturing sector of each of four SAARC countries were examined against 124

information-item requirements of the standards, company acts and listing rules of the stock

exchange, which are commonly observed by the sample companies of the countries under study.

The compliance with the obligatory information items was measured using a relative index for

those four countries. The result shows that Sri Lanka complied, on average, with the highest

requirements of the standards, acts and rules, followed by Bangladesh, Pakistan and India. The

study of Islam has revealed that these South Asian countries are gradually making contributions

to world trade, and because these countries are dependent on aid and investments from beyond

their borders, the accounting development processes and accounting systems need to be such that

they satisfy the investors and donors and, at the same time, create an environment for useful

reporting for user groups within the countries (Islam, 2006).

Alsaeed (2006) assessed the level of disclosure in the annual reports of non-financial Saudi firms

and investigated empirically the hypothesized impact of several firm characteristics on the extent

of voluntary disclosure. He developed a disclosure checklist consisting of 20 voluntary items was

developed to assess the level of disclosure in the 2003 annual reports of 40 firms, forming

approximately 56 percent of the total firms incorporated in Saudi Arabia. Alsaeed (2006) also

examined the association between the level of disclosure and some firm characteristics using a

multiple linear regression analysis. His results showed that the mean of the disclosure index was

lower than average, and that firm size was significantly positively associated with the level of

disclosure. However, the remaining variables were found not to be significant at the 5% level in

explaining the variation of voluntary disclosure.

Chavent et al (2006) opined that prior accounting research have examined the extent of

disclosure and its determinants. Chavent et al (2006) argued that these studies have one major

methodological drawback: the disclosure analysis is often restricted to determination of the

disclosure index, that is, the sum of disclosed items, weighted or unweighted. They commented

that the disclosure profile (which reflects the structure of published information) is generally not

part of the research design. Chavent et al (2006) have introduced a divisive (descendant)

clustering method, which splits the sample into homogeneous sub-groups corresponding to

disclosure patterns (or profiles), for clearer determination of the financial characteristics of each

group. This methodology has illustrated by a study of disclosure on provisions by large French

firms. Their results showed that the disclosure pattern is related to provision intensity, size,

leverage and market expectation, but not to profit, return and industry. They proposed that their

new research method is a valuable complementary tool for expanding on disclosure and

determinants studies, moving from disclosure levels to disclosure patterns.

Al-Shammari, Brown and Tarca (2008) investigated the extent of compliance with international

accounting standards (IASs) by companies in the Gulf Co-Operation Council (GCC) member

states (Bahrain, Oman, Kuwait, Qatar, Saudi Arabia, and the United Arab Emirates). Based on a

sample of 137 companies they found that compliance increased over time, from 68% in 1996 to

82% in 2002. Despite strong economic and cultural ties between the GCC states, there was

significant relationship between-country variation in compliance and among companies based on

size, leverage, internationality, and industry. They commented that noncompliance of IASs

16

reflected some ineffectiveness in the functions of external auditors and enforcement bodies,

which may be of interest to countries that have adopted IASs recently.

Hassan (2009) examined the relationship between the UAE corporations-specific characteristics

(size, level of risk, industry type and reserves) and level of corporate risk disclosure (CRD) in an

emerging economy, UAE. By following the positive accounting and the institutional theories to

generate testable hypotheses and explain the empirical findings, he constructed a risk disclosure

index based on accounting standards, prior literature, and the UAE regulatory framework has

been crafted and calculated for each corporation in the sample. The relationship between the

level of CRD and corporations' characteristics is examined using multiple regression analysis.

The study of Hassan (1999) showed that corporate size is not significantly associated with the

level of CRD. However, the corporate level of risk and corporate industry type are significant in

explaining the variation of CRD. Finally, in contrast with reserves-CRD hypothesized

relationship, corporate reserve is insignificant and negatively associated with level of CRD; on

the other hand, the risk disclosure index items reflect their existence in annual reports rather than

their level of importance (Hassan, 1999). The empirical findings of Hassan‟s study suggested

that corporate reserve, as an explanatory variable, needs further investigation as explained in his

paper. He acknowledged that the crafting process of his CRD index depends on the UAE

regulatory framework. However Hassn (1999) opined that his study seems to add to the

extremely limited literature relating to CRD in Arab countries in general and the UAE in

particular.

Çürük (2009) examined Turkish companies' level of compliance with the disclosure

requirements of the EUFD over the years (1986, 1987, 1991, 1992 and 1995), and assessed

whether companies' level of compliance had been influenced by their corporate characteristics,

such as company size, listing status and industry type. He measured Turkish companies' level of

compliance with the disclosure requirements of the EUFD by an index (i.e. EUFD Disclosure

Compliance Index--EUFDCDI). The index was developed by; constructing disclosure scoring

sheet; obtaining annual reports of 61 sampled Turkish companies over the years; completing

scoring sheet for each companies' annual report; and creating disclosure index. Using the

disclosure index he assessed the companies' compliance with the EU disclosure requirements and

both parametric and non-parametric test, were conducted to determine if there were significant

changes in the extent of disclosure in compliance with the EUFD over the years. In addition,

using the companies EUFDCDI score as dependent variable and corporate characteristics as

independent variables, the Ordinary Least Square regression was run for each year to find out if

the companies' level of compliance with the EU disclosure requirements were influenced by their

corporate characteristics. The results of Çürük‟s (2009) study revealed that Turkish companies'

compliance with the required disclosure by the EUFD varied within the range of 30-85%, but

their compliance increased significantly from one year to another throughout the selected period.

Further Çürük (2009) found that listing status is one of the important corporate characteristics of

the Turkish companies affecting their compliance with the EU disclosure requirements.

17

4. Research Methods 4.1 Selection of Accounting Standards

There have been continuous changes in the IASB Accounting Standards in recent years. For the

sake of our study, we considered only two standards that require maximum disclosure of

information. The standards that were chosen are:

IAS-1 Presentation of Financial Statements (effective on or after 1 July 1998)

IAS-16 Property, Plants and Equipment (effective on or after 1 July 1999)

The above standards have been adopted in Bangladesh and cover a wide range of disclosure. For

example, paragraph 104 of IAS 1 states that this standard supersedes the previous IAS 1

(Disclosure of Accounting Policies), IAS 5 (Information to be disclosed in Financial Standards)

and IAS 13 (Presentation of Current Assets and Current Liabilities).

4.2 Sample Companies A survey of annual reports published by 106 companies listed on Dhaka Stock Exchange (DSE)

was carried out by the present researchers to examine the extent to which those companies have

complied with the mandatory accounting standards. Companies that were listed on Dhaka Stock

Exchange but non financial in nature were selected for the study. The sample represents about

63% of the population of the non-financial companies listed on the DSE. Ten companies were

multinationals. Annual reports were collected through mail and personal visits. The sample

covers the annual reports of companies in Bangladesh for the year 2001-2002. The reason for

selecting this period is that there are dramatic changes in IASs after this period. Furthermore,

timeliness was a consideration given that the annual reports of many companies in Bangladesh

are not usually available immediately after the close of accounting period. Moreover, adaptation

of IASs and promulgation of new BASs will take some considerable time. Therefore, one might

have to wait years to see the impact of the latest IASs / IFRs on company financial reporting in

Bangladesh.

4.3 Items included in the Disclosure Index There is a problem as to the measurement of disclosure of accounting standards. It may be

strongly argued that the most important medium of external financial disclosure is the corporate

annual report (Hossain, 1999). The major task of the present research is to develop a suitable

disclosure index comprising items of information according to accounting standards that are

expected to be disclosed in corporate annual report from the view-point of developing countries.

Marston and Shrieves (1991) are of the opinion that the usefulness of any disclosure index as a

measure of disclosure is dependent on the selection of items to be included in the index (Hossain,

1998). The selection of items included in the disclosure index is a major task in the construction

of any disclosure index (Marston and Shrieves, 1991). The items of information according to the

mandatory accounting standards included in the disclosure index will be prepared from the

sixteen mandatory accounting standards in Bangladesh. The disclosure index so arrived at will be

distributed to five experts in the area of financial reporting. Based on their suggestion the

18

disclosure index will be modified and take the final form. The set of index items will be applied

to the sample companies' annual reports for the year 2000-2001.

A disclosure index consisting of 53 items of information was constructed after a careful review

of the two selected accounting standards. The disclosure index so arrived at was distributed to

five experts in the area of financial reporting. Based on their suggestion the disclosure index was

modified to take its final form. The 53 items included in the disclosure index constructed for this

study included items which were used in the formulation of items of information as per

accounting standards. The list of the disclosure of accounting standards‟ information can be

found in Appendix A. The items of information included in the disclosure index were regrouped

as:

1. Balance Sheet Items;

2. Income Statements Items; and

3. Accounting Policy Items disclosed on the face of financial statements or in notes or in

Financial History

4.4 Scoring in the Disclosure Index

There are various approaches available to develop a scoring scheme to determine the disclosure

level of corporate annual reports from the works of other researchers. There are researchers who

adopted a dichotomous procedure in which an item scores one if disclosed and zero if not disclosed.

The approach used by other researchers who went a weighted disclosure index to be employed. In

some cases the weights were predetermined by the researchers subjectively. In the unweighted

disclosure index disclosure of accounting standards of individual items has been treated as a

dichotomous variable. Here, the only consideration is whether or not a company discloses an item

of accounting standards information in its corporate annual report. If a company discloses an item

of accounting standards information in its annual report it will be awarded `1' and if not it will be

awarded `0'. The disclosure model for the unweighted accounting standards disclosure thus

measures the total disclosure (TD) score for a company as additive as follows:

TD= dii

n

1

Where,

d = 1 if the item di is disclosed

0 if the item di is not disclosed

n = number of items

An unweighted index of accounting standards is the ratio of the value of the number of items a

company discloses divided by total value that it could disclose. Under an unweighted disclosure

index of accounting standards, all items of information in the index are considered equally

important to the average user. The unique advantage of using an unweighted index of

accounting standards is that it permits an analysis independent of the perception of a particular

user group (see Hossain, 1998b). If different users of information as per accounting standards are

asked to weigh the importance of different items of information as per accounting standards in

the disclosure index, they may attach different weights to the same items of information as per

19

accounting standards. In the present study, unweighted index has been considered in examining

the relationship between the extent of disclosure and various corporate attributes.

4.5 Identified Variables and Relevant Hypotheses

Since 1971, Accounting researchers have investigated associations between corporate

characteristics and disclosures in corporate annual reports. Christopher and Islam (1999) tried to

develop a framework for explaining and predicting the level of disclosure of the adopted IASs in

the context of developing countries with reference to a number of variables. Very little empirical

work has so far appeared in the literature on the factors determining their acceptance by the

developing countries and no attempts have so far been made to articulate a framework for the

prediction of the acceptance of the IASs in the developing countries (Christopher and Islam,

1999). The dependent variables to be used in this study are Disclosure Index for Accounting

Standards (DIAS). One disclosure index has been calculated for each of the companies studied.

The explanatory variables used in the study have taken into the account previous similar studies

undertaken by other researchers. The corporate attributes considered are size (proxied by sales

and assets), profitability (proxied by rate of return on assets and net profit margin),

multinationality (subsidiaries of the multinational companies), industry type, and international

link of the audit firm. Findings have consistently shown corporate size and listing status to be

significantly associated with disclosure levels, while mixed results have been reported for

leverage, profitability, and audit firm size. The following paragraphs provide a rationale for

taking into consideration the corporate variables chosen as explanatory variables:

1. Size of the Company

There are few studies which have been found that a significant association between the size of

the company and the extent of disclosure in the corporate annual report. Larger companies may

be hypothesised to disclose information items as per accounting standards in their company

annual reports than smaller companies for a variety of reasons. Firstly, the cost of disseminating

and accumulating detailed information may be relatively low for the larger corporation than the

smaller corporation, and large companies have the resources and expertise to produce more

information in their company annual reports and hence little extra cost may be incurred to

increase disclosure. In addition, larger corporations may collect more information to be used for

their internal management systems (Hossain, 1999). Secondly, smaller firms may feel that their

information disclosure activities could endanger their competitive position with respect to other

larger firms in their industry. As a result, smaller companies may tend to disclose less

information than large companies (Hossain, 1999). Thirdly, large companies receive far greater

press coverage and demands for more information are almost inevitable results. Since companies

like to have as favourable a share price as possible greater disclosure may be felt to give more

confidence to investors (Firth, 1979). Finally, Firth (1979) argued that large firms tend to be in

the `public eye` and attract more interest from government bodies, and thus may disclose more

information to enhance their reputation and public image on one hand and to allay public

criticism and government intervention in their affairs on the other hand. This is analogous to

arguments concerning political visibility put forward by Watts and Zimmerman (1986) although

the latter authors are concerned not with disclosure but the choice of accounting policies. There

20

are several measures of size available. In this study, sales turnover and total assets will be used

as the measures of company size. The following specific hypotheses will be tested regarding size

of the firm:

H1(a): firms with greater total assets disclose information as per accounting standards to a

greater extent than do those firms with fewer total assets.

H1(b): firms with greater sales turnover disclose information as per accounting standards to a

greater extent than do those firms with lower sales turnover.

2. Debt-equity Ratio

The debt-equity ratio has been studied empirically by several researchers to assess whether it

bears any relationship to disclosure level. Researchers such as Chow and Wong-Boren (1987),

Ahmed and Nicholls (1994), Hossain et al (1994), Wallace, Mora and Naser, (1994), Wallace

and Naser (1995) and Inchausti (1997) found no significant association between the debt-equity

ratio and the extent of disclosure. Belkaoui and Kahl (1978) observed a significant negative

relationship between the extent of disclosure and the leverage ratio.

The nature of the relationship between the level of disclosure and gearing is ambiguous.

Companies having more debt in their financial structure can be argued to disclose more as well

as less information in their annual reports. Relatively highly geared companies may disclose

more information to suit the needs of lenders and thus bear increased monitoring costs in the

form of more public disclosure. In addition, such companies may disclose more information to

reassure equity holders in order that they might reduce risk premiums in required rates of return

on equity. On the other hand, there is a possibility that the companies with higher debt-equity

ratios may want to disguise the level of risk and may disclose less information in their corporate

annual reports. In Bangladesh, Development Financial Institutions (DFIs) typically ask

companies who wish to borrow to fulfil a number of requirements for information provision and

the submission of annual reports are important in this respect. Companies with relatively large

borrowings can expect to be monitored more closely by financial institutions and may be

required to furnish information more frequently than companies having smaller amounts of debts

(Ahmed and Nicholls, 1994). As a result, it is likely that companies with large borrowings will

provide more detailed information in their annual reports than companies with small borrowings.

Several measures of leverage have been used in previous studies, including debt to total assets,

total debt as well as the debt-equity ratio. The debt-equity ratio will be used as measure of

leverage in this study. The following specific hypothesis will be tested regarding the debt-equity

ratio:

H2: The level of firm leverage is related to the level of IAS compliance.

3. Profitability

Profitability was used by a number of researchers as an explanatory variable for differences in

disclosure level. Researchers have used a number of profitability and profit-related measures in

their studies, such as net profit to sales, earnings growth, dividend growth and dividend stability,

rate of return and earnings margin, and return on assets. Companies having higher profitability

21

may disclose more information in their corporate annual reports than the companies with lower

profitability (or losses) for a number of reasons. If the profitability of a company is high,

management may disclose more detailed information in the corporate annual report in order to

experience the comfort of communicating it as it is good news (Hossain, 1999). On the other

hand, if profitability is low management may disclose less information in order to cover up the

reasons for losses or lower profits. For profitable companies if the rate of return or return on

investment is more than the industry average, the management of a company has an incentive to

communicate more information which is favourable to it as the basis of explanations of good

news and is likely to disclose more information in their corporate annual reports as a result. In

the present study, net profits to sales and rate of return on assets have been used as the measures

of profitability. The following specific hypotheses will be tested regarding profitability:

H3(a) : firms with higher net profit to sales disclose information as per accounting standards to a

greater extent than do those firms with lower net profit to sales ratios.

H3(b): firms with higher rates of return on assets disclose information as per accounting

standards to a greater extent than do those firms with lower rates of return on assets.

4. Status of a Subsidiary of a Multinational Company

The subsidiaries in developing countries of parent multinational companies from developed

countries are likely to disclose more information than their local counterparts. This proposition is

supported by Bazley, Brown and Izam (1985), Gay, Farle and Peerson (1993) and Rahman and

Scapens (1987). Several justifications may be offered for the inference this multinationality

variable. First, the parent companies of these multinationals‟ subsidiaries usually operate their

businesses in developed countries where standards of reporting are higher than in developing

countries (Hossain, 1999). The subsidiaries in developing countries can be expected to have to

generate more information to comply with more stringent internal accounting standards of their

parent multinational (Ahmed and Nicholls, 1994) and at the same time have to fulfil the

disclosure requirements of the host countries. Avoiding two different sets of accounts (one for

host and one for the parent company) may also be a consideration (Christopher and Islam, 1999).

Parent company multinationals may require the preparation of their subsidiaries‟ accounts on

international or developed country GAAP for purposes of consolidation or may require the use of

standardised accounting principles for internal performance measurement or control purposes

(Hossain, 1998). As a result, the subsidiaries of multinational companies may disclose additional

information as per accounting standards than local companies without incurring any additional

costs. Second, it has been argued that the political costs for these subsidiaries may be more in

developing countries than in developed countries as there are political pressure groups who

perceive the multinational companies as a source of economic exploitation and view them as

agents of Western imperialism and keep a close eye on the subsidiaries of these multinational

companies as a consequence (Ahmed and Nicholls, 1994). The following specific hypothesis will

be tested regarding the multinationality:

H4: firms with the mutinationality connections (subsidiaries of multinational companies) disclose

information as per accounting standards to a greater extent than do with those of their domestic

counterparts.

22

5. International Link of Audit Firm

Some studies have examined empirically the relation between the characteristics of the audit firm

(size of audit firm or international link of the auditing firm) and the extent of disclosure and

found positive association between the audit firm size and the level of disclosure. It may be

argued that audit firms are concerned with the minimum disclosure that is required by law and

other aspects of GAAP. However, it is more likely that the larger audit firms have a stronger

incentive to produce high quality audits in order to maintain their reputation than do smaller

audit firms (Hossain, 1998). If clients prepare financial reports in which disclosure is inadequate

or erroneous, larger audit firms may be more likely to report adversely on the position of the

company (Ahmed and Nicholls, 1994). It has been argued that the percentage of audit companies

with foreign affiliation may significantly influence adoption/non-adoption of an International

Accounting Standard by a developing country (Christopher and Islam, 1999). Although, the

primary responsibility for preparing the annual report rests with the company, the company‟s

auditors may exercise some influence or provide advice regarding the level of disclosure to give.

It has been argued that larger, better known audit firms may be able to exercise greater influence

and they may be associated with higher disclosure levels (Firth, 1979). As a result, larger audit

firms may have more influence over their clients to disclose more information than the minimum

which is adequate. The following specific hypothesis will be tested regarding the audit firm size

or international link of the audit firm:

H5 : firms that engage larger international audit firms disclose information as per accounting

standard to a greater extent than do those firms that engage domestic audit firms.

6. Industry Type

Industry type has been used by a few researchers as an explanatory variable for differences in

disclosure level. When the activities in some industry‟s sector assume significant at a rapid pace,

the company accountants, auditors and the regulators all need guidance on the accounting side

(Christopher and Islam, 1999). It is possible that disclosure in corporate reports in Bangladesh

may not be identical throughout different industries. The existence of a dominant firm with a

high level of disclosure in a particular industry may produce a bandwagon effect on levels of

disclosure adopted by other firms in the same industry (Cooke, 1991). No other firm may wish to

be outscored by the leader firm and as a result, a particular industry may have similar disclosure

policies because of the follow the leader effect (Wallace, 1987; Belkaoui and Kahl, 1978). In

addition, the adoption of different industry-related accounting measurement, valuation and

disclosure techniques and policies may lead to differential disclosure in financial reports

published by enterprises within a country (Wallace, 1987). Manufacturing may disclose certain

items of information while others may not. For example, it is sometimes customary to expect

manufacturing industries to communicate more with the environment than is the case with other

business types (Wallace, 1987). The following specific hypotheses will be tested regarding

industry type:

23

H6: firms falling with in a manufacturing concern disclose additional information as per

accounting standard than do those firms falling with in other industry types.

4.6 Multiple Regression Models

Multiple linear regression techniques are used to test hypotheses.

DIAS= ROASSETS + NPMARGIN + MNCS + INDUTYPE + SALES +

INLINK + ASSETS +

Where, DIAS = total score received each sample company under disclosure of accounting

standards index;

the constant, and

the error term.

Thus, it was expected that for the sample companies size (sales and assets), profitability (rate of

return on assets, and net profit margin), international link of the audit firm, industry type, and

status of a subsidiary of a multinational company should be positively associated with the extent

of disclosure of accounting standards. The description of the seven independent variables, their

labels and expected signs and relationships are present in Table 1.

(Insert Table 1 about here)

24

5. Findings of the Study

5.1 Disclosure Levels by the Sample Companies The score received by all individual companies in the sample have been presented in the

Appendix B that ranked the companies in order to their overall disclosure levels as per adopted

sample accounting standards. Summary of descriptive statistics of values according to the

Disclosure Index is provided in Table 2.

(Insert Table 2 about here)

The data in the table offers some insights. The table contains data on the dispersion of the

disclosures (range as given by the differences between minimum and maximum scores and

standard deviation). The table shows that the sample companies on an average disclosed 69.05%

of the informational items as per accounting standards with a minimum and maximum level of

35.85% and 94.34% respectively. The standard deviation of the overall disclosures is 10.9764.

(Insert Table 3 about here)

Table 3 shows the distribution of disclosure performance as per sample accounting standards by

expressing the number of items disclosed as percentage of the total of 53 items comprising the

disclosure index. Column one of the tables distinguishes ranges of disclosure performances.

Table 3 shows the modal percentage of accounting standards disclosure to be 60%-70% of items

made by the sample companies. The study also depicts that 24.64% of the sample companies

disclosed accounting standards‟ informational items in the range of 50%-60%, 33.01%

companies in between 60% and 70% and 24.53% of the sample companies disclosed in the range

of 70% and 80% of the information comprising disclosure index. This can be favourably

comparable with the results of Hossain and Taylor (1998). So, this evidence tends to show that

there was a notable increase in the level of corporate disclosure made by the companies in 1999

than in 1993 (mean disclosure level was 29.33%). However, as the study of Hossain and Taylor

(1998) reported their results based on the CARs for the year 1992-93 which were not prepared

according to the Companies Act 1994, it is very difficult to comment whether or not the

Companies Act 1994 is responsible for the increased level of disclosure made by the Bangladeshi

companies.

5.2 Distribution of the Index Items into Different Parts of Annual Reports

In the present study, the disclosure index of 53 items of information showing overall disclosure

has been segregated into four major groupings or representation parts of company annual reports.

Appendix C shows the segregation of the overall items into these four parts. Table 4 shows the

standard distribution of the informational items comprising disclosure index in to different parts

of an annual report.

(Insert Table 4 about here)

25

5.2.1 Results of Multivariate Analyses This section focussed on the discussion on multivariate analysis of correlation co-efficient and

results of two multiple regression models of the corporate disclosure as per accounting standards

and six corporate attributes are presented in the third section. Spearman Rank Correlation Co-

efficient, and Ordinary Least Square (OLS) regression were used to test the hypotheses of the

study.

5.2.2 Correlation Analysis

To examine the correlation between the dependent and independent variables, Pearson product

moment correlation coefficients (r) were computed. A correlation matrix of all the values of r for

the explanatory variables along with the dependent variables was constructed and is reported in

Table 5. The Pearson product-moment coefficients of the correlation between INLINK and

MNCS and between ROASSETS and NPMARGIN, SALES and NPMARGIN, and between

SALES MNCS variables are higher than the coefficient of the correlation between every two of

the other corporate attributes. Table 7 shows a noteworthy collinearity (p 0.01) between certain

variables (i.e., between SALES and MNCS variables (.4292), between ROASSETS and

NPMARGIN (.6176) and between ASSETS and SALES variables (.5032). However, Kaplan

(1982) suggests that multicollinearity may be a problem when the correlation between

independent variables is 0.90 and above whereas Emory (1982) considered more than 0.80 to be

problematic. It is evident from the table that the magnitude of the correlation between variables

seems to indicate no severe multicollinearity problems. As SALES and ASSETS are the proxies

for size of a company and has serious multicollinearity problems, two regression models were run

in order to see whether or not the have significant relationship with the extent of disclosure as per

accounting standards.

(Insert Table 5 about here)

5.2.3 Results of Regression Analyses

It was hypothesised that for the sample companies, INLINK, SALES, ROASSTES, NPMARGIN,

MNCS, ASSETS and INDUSTRY variables would be positively associated with the extent of

disclosure as per adopted sample accounting standards. However, it was found that only the

relation between disclosure as per accounting standards and the NPMARGIN variable was

negatively and status of a subsidiary of a multinational company was positively significant at 5%

level (see Table 6 and 7).

(Insert Table 6 about here)

Table 8 indicates that the actual sign of two of the variables (i.e., INDUSTRY and NPMARGIN)

were not in the direction predicted. The relationship between disclosure as per accounting

standards and other four variables were found not to be significant. The R2

under the model was

.2192, which indicates that the model is capable of explaining 21.92% of the variability in

disclosure of information as per accounting standards in the annual reports of sample Bangladeshi

companies under study. The adjusted R2 indicate that 17.19 percent of the variation in the

dependent variable in the model used here is explained by variations in the independent variables.

26

The F-ratio indicates that the model significantly explains the variations in disclosure as per

accounting standards of annual reports in Bangladesh.

(Insert Table 7 about here)

The results of the regression models give rise to some questions. Firstly, larger companies were

expected to disclose more information comprising the disclosure index for accounting standards.

However, the regression models show that the association between the level of disclosure as per

accounting standards and size of the company (total assets and sales turnover) is not significant

at 5% level. This needs further investigation. Again it was expected that the profitable companies

will disclose more information based on sample accounting standards than those companies with

losses or lower profits. Both the regression models show the profitability where there is inverse

relationship between the extent of disclosure comprising informational items as per adopted

accounting standards and net profit margin of the sample companies. This means, the loss-

making companies or companies with lower profit are disclosing more information than

companies with larger profit.

(Insert Table 8 about here)

The negative value of t- value of the net profit margin (NPMARGIN) confirms this evidence

which is significant at a 5% level. It is interesting to note that of the ten companies, five are

shown to be loss-making concerns for the year under study when their profit and loss accounts

are examined. A closure investigation of the top ranking companies and lowest ranking

companies showed that all of the top ranking companies were profit making companies which

supports our hypothesis that profitable companies would disclose more information as per

accounting standards in their corporate annual reports and out of the ten lowest ranking

companies, five were found to be loss-making concerns for the year under study when their

profit and loss accounts were examined. However, this needs further investigation.

27

6. Conclusions, Limitations and Recommendations for Future Research

This is an exploratory type of research. In this study the researcher proposed a model of the

determinants of the adoption of IASs by developing countries in general and in Bangladesh in

particular. The model consists of six testable hypotheses that may explain the reasons for the

adoption/non-adoption of an IAS in Bangladesh. The propositions developed by the researchers

have been empirically tested. Appropriate statistical analyses have been empirically performed to

examine the relationship between disclosure of accounting standards made by the sample

companies and several corporate attributes. There may be other factors that may be important for

the disclosure/non-disclosure of accounting standards by the Bangladeshi sample companies.

The Securities and Exchange Commission (SEC) should take proper action to make the adopted

accounting standards as mandatory by incorporating them in the legislation (i.e. the Companies

Act 1994 and the Securities and Exchange Rules 1987).

This study reports that the average disclosure level as per two sample accounting standards of the

sample companies is 69.05% with a minimum and maximum level of 35.85% and 94.34%

respectively which is very much encouraging. This can be favourably comparable with the

results of Hossain and Taylor (1998). This results study showed a notable increase in the level of

corporate disclosure made by the companies in 2002 (69.05%) whereas the study of Hossain and

Taylor (1998) showed mean disclosure level of the sample companies as 29.33% in 1993.

However, as the study of Hossain and Taylor (1998) reported their results based on the CARs for

the year 1992-93 which were not prepared according to the Companies Act 1994, one may argue

that the mandatory information disclosure as laid down in Companies Act 1994 is responsible for

the increased level of disclosure the Bangladeshi companies. As the Companies Act 1994

included many provisions which are mandatory as well as required by the adopted IASs.

The regression model showed that there is inverse relationship between the extent of disclosure

comprising informational items as per adopted accounting standards and profitability of the

sample companies. This means, the loss-making companies were disclosing more information

than companies with more profit. The negative t value of the Net Profit Margin (NPMARGIN) in

the regression analysis confirms this evidence which is significant at a 5% level. This requires

further investigation. Furthermore, another hypothesis of this study was that the subsidiaries of

the multinational companies (MNCS) would disclose additional information in their CARs than

their domestic counterparts. This study showed that four out of top ten ranking companies were

disclosing information as per accounting standards. In addition, the regression models developed

for this study show that MNCS variable is significant at a 5% level which implies that the

subsidiaries of the multinational companies would disclose more accounting standards'

information in their CARs as compared to their counterparts. However, this study also tends to

show that the size of the company (ASSETS) is significant at a 10% level which implies that

firms with higher assets disclosed more information as per accounting standards than the smaller

companies. All other three variables were proved not to be significant either at a 5% or 10%

level.

28

Empirical studies show that the developing countries have not adopted the IASs with enthusiasm

(Christopher and Islam, 1999). This study showed that the measures taken by the ICAB in

adopting accounting standards in Bangladesh have produced many remarkable results. The

attempt made by the ICAB in developing accounting standards in the light of the IASs is

encouraging and may be referred to as „revolution‟ for the development of corporate financial

reporting practice in Bangladesh. But the process of adopting and implementing standards are

still questionable. There are some studies in Bangladesh which concluded that the companies of

Bangladesh are reluctant to disclose information and they are only concerned about the minimum

disclosure. There is a big gap between the Companies Act, the Securities and Exchange Rules

and the adopted Accounting Standards regarding disclosure of accounting information. In such a

situation, there was a possibility that the adoption of the accounting standards did not bring any

remarkable changes in the financial reporting practices of Bangladesh. Like Australia,

Bangladesh Government or SEC should constitute a separate Financial Reporting Council

(FRC). A separate standards setting board, suppose Bangladesh Accounting Standards Board

(BASB) consisting of members from government, SEC, ICAB, ICMAB, Investors,

academicians, layers etc. should be formed and work independently under the auspices of FRC to

adopt IASs and IFRSs for better disclosure and harmonisation. Government should give legal

backing for compliance with the adopted standards and enforcement activities. The developed

countries who had better pieces of legislations have pronounced new legislations. For example

Sarbanes-Oxley Act 2002 in USA and CLERP 9 Act 2004 are expected to respond to the needs

of the day. We think, this is high time to bring huge modifications in the Companies Act and

securities regulations in Bangladesh to respond to the corporate governance issues including

setting and implementation of accounting standards for transparency in disclosure.

The IASB has taken wide-reaching measures by pronouncing more standards in response to

perceived global needs that suggest further studies on compliance. It can be argued that many

developing countries/economies do not have the economic and technological capacity and

capability to develop their accounting and reporting standards. They have therefore, accounting

standards issued by a developed country or the International Accounting Standards or IFRSs

issued by the IASC/IASB. The desire to ensure a smooth flow of international investment may

also be a factor for such adoption or adaptation. As follow-up to this, future research is needed

among IFRSs adopting countries to examine whether harmonization or compliance with IFRSs

has been significantly improved after the adoption of IFRSs as their national standards.

This study considers the annual reports for a single year. Further research can be undertaken to

measure the extent of disclosure longitudinally to determine whether quality of disclosure has

improved over time. Such a study would provide additional insights on corporate disclosure

practices in Bangladesh. This study does not consider non-listed or financial companies. Further

research can be undertaken taking into consideration both groups of companies. The number of

accounting standards was limited to IAS-1 and IAS-16. The results may be different if all the

mandatory IASs and/or IFRS were examined, for example, distinctions made between mandatory

items and other bases of disclosure. Market value of companies could be the proxy for the size of

the companies. In addition, this could be used in calculating the proportion of assets-in-place for

these companies. However, market value of the companies was not readily available at the time

of preparation of this paper. The ownership structure of a company variable could be a

29

potentially important explanatory variable in relation to emerging economies where majority of

the ownership of many companies are closely held often by families.

30

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Table 1

List of independent variables, their labels and expected signs and relationships in the regression

Variable Labels

in the OLS

Variables Expected sign and relationship

INTLINK International link of

auditing firms

INLINK has a significant positive relationship

with the level of disclosure of accounting standards

SALES Total of sales SALES has a significant positive relationship with

the level of disclosure of accounting standards

NPMARGIN Net profit margin NPMARGIN has a significant positive relationship

with the level of disclosure of accounting standards

ROASSETS Rate of return on total

assets

ROASSETS has a significant positive relationship

with the level of disclosure of accounting standards

MNCS Multinationality of

companies (Subsidiary

of a multinational

company)

MNCS has a significant positive relationship with

the level of disclosure of accounting standards

ASSETS

Total assets

ASSETS has a significant positive relationship

with the level of disclosure of accounting standards

INDUSTRY Industry Type INDUSTRY a significant positive relationship with

the level of disclosure of accounting standards

Table 2

Descriptive statistics of the disclosure under four sample accounting standards

Percentage of Disclosure of

Index items as per

accounting Standards

Disclosure of Index items

out of 53 items

Mean 69.05% 36.59

Standard Deviation 10.9764 5.8175

Minimum 35.85% 19.00

Maximum 44.34% 50.0

36

Table 3 Disclosure Level as per Sample Accounting Standards

Score range as a percentage of total

number of items in Disclosure Index

Number of

companies

Percentage in the sample

Less than 30%

30%-40%

40%-50%

50%-60%

60%-70%

70%-80%

80%-90%

90% and over

00

01

00

24

35

26

16

04

0.00

0.94

0.00

22.64

33.01

24.53

15.10

3.77

Total 106 100.00

Table 4 Distribution of the Index Items into Different Parts of Annual Reports

Major Parts of Annual Report Number of

Items

Percentage of the total number of

items of information

Balance Sheet Items (BSI)

Income Statement Items (ISI)

Measurement and Valuation Methods/

Accounting Policy (MVM)

Items of Historical Summary (IHS)

23

11

14

05

43.40

20.75

26.42

9.43

Total 53 100.00

Table 5 Spearman Rank Correlation

VARIABLES ASSETS INDUSTRY INLINK MNCS NPMARGIN ROASSETS SALES

ASSETS 1.00

INDUSTRY -.0315 1.00

INLINK .1808* -.0242 1.00

MNCS .1899 .0905 .2980** 1.00

NPMARGIN .0794* -.1865*I .0035 .1468 1.00

ROASSETS .0959 -.0592 .0135 .1809* .6176** 1.00

SALES .5032** .1667 .1667* .4292** .2170** .1522 1.00

** coefficient of correlation significant at 1% level or better (p .001)

*coefficient of correlation significant at 5% level or better (p 0.05)

37

Table 6 Summary of the regression output (Model One)

Coefficient of multiple regression (Multiple R) .46821

Coefficient of determination (R2) .21922

Adjusted R2 .17190

Standard Error 5.29392

Analysis of Variance

D.F. Sum of Squares Mean Squares

Regression 6 779.02269 129.83712

Residual 99 2774.53391 28.02560

F ratio = 4.63280

------------------ Variables in the Equation ------------------

Unstandardized Coefficients Standardized

Coefficients

Variable B Standard Error Beta T Sig T

(constant) 35.271843 1.730003 20.388 .0000

ASSETS 1.144113E-09 6.0874E-10 .17771631 1.875 .0638

INDUSTRY -.384527 1.736405 -.020254 -.221 .8252

INLINK 1.596411 1.159394 .129665 1.377 .1716

MNCS 6.963006 2.247825 .298661 3.098 .0025

NPMARGIN -.053780 .022471 -.276099 -2.393 .0186

ROASSETS .026493 .043453 .069516 .610 .5435

Table 7

Summary of the regression output (Model Two)

Coefficient of multiple regression (Multiple R) .43833

Coefficient of determination (R2) .19213

Adjusted R2 .14317

Standard Error 5.38499

Analysis of Variance

D.F. Sum of Squares Mean Squares

Regression 6 682.74494 113.79082

Residual 99 2870.81166 28.99810

F ratio = 3.92408

------------------ Variables in the Equation ------------------

Unstandardized Coefficients Standardized

Coefficients

Variable B Standard Error Beta T Sig T

(constant) 35.975572 1.717072 20.952 .0000

INDUSTRY -.527978 1.769084 -.027809 -.298 .7660

INLINK 1.868990 1.170614 .151805 1.597 .1135

MNCS 7.267534 2.444831 .311723 2.973 .0037

NPMARGIN -.054249 .023171 -.278504 -2.341 .0212

ROASSETS .030519 .044175 .080080 .691 .4913

SALES 1.12511E-10 4.0806E-10 .28105 .276 .7833

38

Table 8 Relationship between disclosure as per accounting standards and corporate attributes for Sample

companies

Variable labels Expected sign Actual sign Significance level

ASSETS +

INDUSTRY + _

INLINK + +

MNCS + **

NPMARGIN + *

ROASSETS +

* Significance level at 5%

** Significance level at 1%

39

Appendix A DISCLOSURE INDEX

Balance Sheet Items

Current Assets

1. Cash in hand and banks, classified

2. Marketable Securities,

3. Receivables are classified

4. Inventories are classified

5. Advance Payment of Expenses

Long Term Assets

6. Property, plant and equipment, classified

7. Other long-term assets classified

8. Accumulated Depreciation

9. Intangibles (i.e., R & D, Patents, Goodwill, etc)

10. Long-term Investment

11. Investment in subsidiary and associated companies

12. Market value of securities (if any)

13. Long term contracts

Current Liabilities

14. Payables, classified

15. Current portion of long term liabilities

16. Bank loans

17. Provision for taxes

18. Dividend payable

19. Deferred revenues and advances from customers

Long-term liabilities:

20. Long-term liabilities, classified

Shareholders' Interests:

21. Shareholders' capital, classified

22. The number or amount of share including nominal value of share

23. Reserves and surplus (retained earnings)

Income Statement Items

40

24. Sales and other operating revenues

25. Interest Income

26. Income from investment

27. Interest expense

28. Tax Expense

29. Usual charges and credits

30. Significant inter company transaction

31. Net income

32. Maintenance, repairs and improvements

33. Gains and losses on disposal of assets

34. Depreciation of Assets

Accounting Policy Items

35. Basis of overall valuation

36. Taxes

37. Reserve accounting

38. Depreciation policy

39. Extraordinary items

40. Subsequent events after the balance sheet date

41. Gains and losses on disposal of property

42. Pension costs and retirement plans

43. Commitments and contingencies.

44. Consolidation policy (if any)

45. Translation of foreign currencies including the treatment of foreign exchange gains or losses

46. Methods of revenue recognition

47. Inventory valuation method

48. Changes in Accounting policy and their effects

Historical Summary

49. Name of the company

50. The country of incorporation

51. The balance sheet date

52. Brief description of the nature and activities of the companies

53. Corresponding figure of preceding period

41

Appendix B The score received by the sample companies along with percentage of disclosure and non-disclosure

Name of the Companies Number of items

disclosed

% of disclosure

% of non-disclosure

NATINAL TEA COMPANY LTD. 50 94.34 5.66

HILL PLANTATION LTD. 50 94.34 5.66

BOC LIMITED 49 92.45 7.55

MONNO CERAMIC INDUSTRIES LIMITED 48 90.57 9.43

ISLAM JUTE MILLS LIMITED 47 88.68 11.32

BANGLADESH LAMPS LTD. 47 88.68 11.32

STANDARD CERAMIC INDUSTRIES LTD. 45 84.91 15.09

BRITISH AMERICAN TOBBACO BANGLADESH LIMITED

45 84.91 15.09

WATA CHEMICALS LTD. 44 83.02 16.98

GACHIHATA AQUACULTURE FARMS LTD. 44 83.02 16.98

BANGLDESH THAI ALUMINIUM LTD. 44 83.02 16.98

ASRAF TEXTILE MILLS LTD. 44 83.02 16.98

APEX TANNERY LTD. 44 83.02 16.98

APEX FOODS LTD. 44 83.02 16.98

SHINEPUKUR HOLDINGS LIMITED 43 81.13 18.87

PADMA TEXTILE MILLS LRD. 43 81.13 18.87

MEGHNA SHRIMP CULTURE LTD. 43 81.13 18.87

BEXIMCO FISHERIES LIMITED 43 81.13 18.87

ALLTEX INDUSTRIES LTD. 43 81.13 18.87

AGRICULTURE MARKETING COMPANY LTD. 43 81.13 18.87

MEGHNA VEGITAVBLE OILS INDUSTRIES LIMITED 42 79.25 20.75

BANGLADESH ELECTRICITY MERS LIMITED 42 79.25 20.75

SINGER BANGLADESH LTD. 41 77.36 22.64

DESH GARMENTS LIMITED 41 77.36 22.64

Tallu Spinning Mills Ltd. 41 77.36 22.64

USMANIA GLASS SHEET FACTORY LTD. 40 75.47 24.53

OLYMPIC INDUSTRIES LTD. 40 75.47 24.53

PHARMACO PHARMACEUTICALS LTD. 40 75.47 24.53

MONNO JUTE STAFLLERS LTD. 40 75.47 24.53

DYNAMIC TEXTILE INDUSTRIES LTD. 40 75.47 24.53

BENGAL FINE CERAMICS LTD. 40 75.47 24.53

BATA SHOE CO. BANGLADESH LTD. 40 75.47 24.53

THERAPEUTICS (BANGLADESG) LTD. 39 73.58 26.42

QUASEM DRYCELLS LTD. 39 73.58 26.42

MONA FOOD INDUSTRY LTD. 39 73.58 26.42

42

Appendix B(continued) The score received by the sample companies along with percentage of disclosure and non-disclosure

Name of the Companies Number of items

disclosed

% of disclosure

% of non-disclosure

KAY AND QUE (BD) LTD. 39 73.58 26.42

IMAM BUTTON INDUSTRIES LTD. 39 73.58 26.42

GQ BALL PEN INDUSTRIES LTD. 39 73.58 26.42

BEXIMCO SYNTHETICS LIMITED 39 73.58 26.42

BEXIMCO SYNTHETICS LIMITED 39 73.58 26.42

BANGLADESH CHEMICAL INDUSTRIES LIMITED 39 73.58 26.42

AMAM SEA FOOD INDUSTRIES LTD. 39 73.58 26.42

STYLECRAFT LTD. 38 71.7 28.3

NATIONAL POLYMER INDUSTRIES LTD. 38 71.7 28.3

DHAKA FISHERIES LTD. 38 71.7 28.3

BANGLADESH EXPORT IMPORT CO. LTD. 38 71.7 28.3

SQUARE PHARMACEUTICALS LTD. 37 69.81 30.19

SAMATA LEATHER COMPLEX LIMITED 37 69.81 30.19

RAHIMA FOOD CORPORATION LIMITED 37 69.81 30.19

NORTHERN JUTE MANUFACTURING CO. LTD. 37 69.81 30.19

MAQ PAPER INDUSTRIES LTD. 37 69.81 30.19

APEX WEAVING AND FINISHING MILLS LTD. 37 69.81 30.19

PETRO SYNTHETIC PRODUCTS LTD. 36 67.92 32.08

GLAXO WELCOME (BD) LTD. 36 67.92 32.08

EASTERN HOUSING LTD. 36 67.92 32.08

BEXIMCO INFUSIONS LTD. 36 67.92 32.08

BENGAL BISCUITS LTD. 36 67.92 32.08

APEX SPINNING AND KNITING LTD. 36 67.92 32.08

AFTAB AUTOMOBILES LTD. 36 67.92 32.08

SAVAR REFACTORIES LTD. 35 66.04 33.96

MONNO FABRICS LIMITED 35 66.04 33.96

BEXIMCO KNITTING LTD. 35 66.04 33.96

BEXIMCO DENIMS LTD. 35 66.04 33.96

BANGAS LIMITED 35 66.04 33.96

AZIZ PIPES LTD. 35 66.04 33.96

ALLTEX INDUSTRIES LIMITED 35 66.04 33.96

NATIONAL TEA COMPANY LIMITED 34 64.15 35.85

MEGHNA VEGITABLE OIL INDUSTRIES LIMITED 34 64.15 35.85

EAGLE STAR TEXTILE MILLS LTD. 34 64.15 35.85

BENGAL FINE CERAMICS LTD. 34 64.15 35.85

ATLAS BANGLADESH LTD. 34 64.15 35.85

WONDERLAND TOYS LTD. 33 62.26 37.74

SREEPUR TEXTILE MILLS LIMITED 33 62.26 37.74

43

Appendix B (continued) The score received by the sample companies along with percentage of disclosure and non-disclosure

Name of the Companies Number of items

disclosed

% of disclosur

e

% of non-disclosur

e

MEGHNA CEMENT MILL LTD. 33 62.26 37.74

LEXCO LIMITED 33 62.26 37.74

DULAMIAH COTTON SPINNING MILLS LTD. 33 62.26 37.74

DELTA MILLERS LTD. 33 62.26 37.74

ARAMIT LIMITED 33 62.26 37.74

NATIONAL TUBES LTD. 32 60.38 39.62

CHITTAGONG CEMENT CLINKER GRINDING CO. LTD.

32 60.38 39.62

BANGLADESH GENERAL INSURANCE LIMITED 32 60.38 39.62

RAHMAN CHEMICAL INDUSTRIES LTD. 31 58.49 41.51

PRIME TEXTILE SPINNING MILLS LTD. 31 58.49 41.51

NILOY CEMENT INDUSTRIES LTD. 31 58.49 41.51

MONNO JUTE STAFFLERS LTD. 31 58.49 41.51

LIBRA PHARMACEUTICALS LTD. 31 58.49 41.51

EASTERN CABLES LTD. 31 58.49 41.51

BANGLDESH LEAF TOBACCO LTD. 31 58.49 41.51

SREEPUR TEXTILE MILLS LTD. 30 56.6 43.4

SONAGOAN TEXTILE MILLS LTD. 30 56.6 43.4

SOMORITA HOSPITAL LTD. 30 56.6 43.4

SAJIB KNITWEAR GARMENTS LTD. 30 56.6 43.4

MODERN INDUSTRIES (BD) LTD. 30 56.6 43.4

MEGHNA CEMENT MILLS LTD. 30 56.6 43.4

KARIM PIPE MILLS LIMITED 30 56.6 43.4

FU-WANG CERAMIC INDUSTRIES LTD. 30 56.6 43.4

ANWAR GALVANIZING LTD. 30 56.6 43.4

AMBEE PHARMACEUTICALS LTD. 30 56.6 43.4

PERFUME CHEMICAL INDUSTRIES LTD. 29 54.72 45.28

MITA TEXTILES LTD. 29 54.72 45.28

CONFIDENCE CEMENT LTD. 29 54.72 45.28

EASTERN LUBRICANTS LTD. 27 50.94 49.06

CHIC TEX LIMITED 27 50.94 49.06

BEXIMCO INFUSION LTD. 27 50.94 49.06

BANGLADESH MONOSPUL MGT. CO. LTD. 27 50.94 49.06

CMC KAMAL TEXTILE MILLS LTD. 19 35.85 64.15

44

Appendix C Disclosure of Information as per accounting standards by the sample companies by categories

Keys:

Overall: Overall Disclosure of Information as per accounting standards

BSI: Balance Sheet Items

ISI: Income Statement Items

MVM: Measurement and Valuation Methods/Accounting Policies

IHS: Items of Historical Summary

Name of the Companies

% Overall % BSI

% ISI

% MVM

% IHS

MONNO JUTE STAFLLERS LTD. 75.47 82.61 72.73 57.14 100

LEXCO LIMITED 62.26 65.22 63.64 42.86 100

SREEPUR TEXTILE MILLS LTD. 56.6 56.52 54.55 42.86 100

DESH GARMENTS LIMITED 77.36 82.61 81.82 57.14 100

MONNO FABRICS LIMITED 66.04 69.57 54.55 57.14 100

ALLTEX INDUSTRIES LIMITED 66.04 60.87 54.55 71.43 100

SREEPUR TEXTILE MILLS LIMITED 62.26 69.57 36.36 57.14 100

MEGHNA CEMENT MILL LTD. 62.26 60.87 54.55 57.14 100

MAQ PAPER INDUSTRIES LTD. 69.81 69.57 72.73 57.14 100

BATA SHOE CO. BANGLADESH LTD. 75.47 78.26 72.73 64.29 100

BEXIMCO SYNTHETICS LIMITED 73.58 78.26 72.73 57.14 100

Pharmaco Pharmaceuticals Ltd. 75.47 73.91 90.91 57.14 100

BEXIMCO INFUSIONS LTD. 67.92 73.91 63.64 50 100

SQUARE PHARMACEUTICALS LTD. 69.81 73.91 81.82 42.86 100

SHINEPUKUR HOLDINGS LIMITED 81.13 86.96 72.73 71.43 100

BOC LIMITED 92.45 108.7 90.91 64.29 100

MEGHNA VEGITAVBLE OILS INDUSTRIES LIMITED

79.25 73.91 81.82 78.57 100

BENGAL FINE CERAMICS LTD. 75.47 73.91 81.82 64.29 100

APEX TANNERY LTD. 83.02 78.26 90.91 78.57 100

BANGLADESH CHEMICAL INDUSTRIES LIMITED

73.58 73.91 81.82 57.14 100

RAHIMA FOOD CORPORATION LIMITED

69.81 69.57 72.73 57.14 100

BRITISH AMERICAN TOBBACO BANGLADESH LIMITED

84.91 78.26 81.82 92.86 100

SAMATA LEATHER COMPLEX LIMITED

69.81 73.91 54.55 64.29 100

KARIM PIPE MILLS LIMITED 56.6 65.22 63.64 21.43 100

45

Appendix C (Continued) Disclosure of Information as per accounting standards by the sample companies by categories

Name of the Companies

% Overall % BSI

% ISI

% MVM

% IHS

ISLAM JUTE MILLS LIMITED 88.68 82.61 100 85.71 100

GACHIHATA AQUACULTURE FARMS LTD. 83.02 78.26 90.91 78.57 100

BANGLADESH ELECTRICITY MERS LIMITED

79.25 73.91 81.82 78.57 100

THERAPEUTICS (BANGLADESG) LTD. 73.58 69.57 63.64 78.57 100

DYNAMIC TEXTILE INDUSTRIES LTD. 75.47 69.57 63.64 85.71 100

WATA CHEMICALS LTD. 83.02 78.26 81.82 85.71 100

MEGHNA SHRIMP CULTURE LTD. 81.13 73.91 72.73 92.86 100

WONDERLAND TOYS LTD. 62.26 65.22 63.64 42.86 100

PETRO SYNTHETIC PRODUCTS LTD. 67.92 69.57 63.64 57.14 100

STYLECRAFT LTD. 71.7 73.91 63.64 64.29 100

IMAM BUTTON INDUSTRIES LTD. 73.58 69.57 63.64 78.57 100

APEX WEAVING AND FINISHING MILLS LTD.

69.81 69.57 72.73 57.14 100

BANGAS LIMITED 66.04 69.57 63.64 50 100

MONA FOOD INDUSTRY LTD. 73.58 78.26 72.73 57.14 100

SAVAR REFACTORIES LTD. 66.04 69.57 63.64 50 100

BEXIMCO FISHERIES LIMITED 81.13 82.61 81.82 71.43 100

BANGLADESH LAMPS LTD. 88.68 91.3 90.91 78.57 100

LIBRA PHARMACEUTICALS LTD. 58.49 60.87 54.55 42.86 100

NORTHERN JUTE MANUFACTURING CO. LTD.

69.81 69.57 72.73 57.14 100

RAHMAN CHEMICAL INDUSTRIES LTD. 58.49 60.87 54.55 42.86 100

QUASEM DRYCELLS LTD. 73.58 73.91 72.73 64.29 100

EAGLE STAR TEXTILE MILLS LTD. 64.15 60.87 45.45 71.43 100

NATIONAL POLYMER INDUSTRIES LTD. 71.7 73.91 54.55 71.43 100

APEX FOODS LTD. 83.02 82.61 81.82 78.57 100

PADMA TEXTILE MILLS LRD. 81.13 73.91 81.82 85.71 100

ASRAF TEXTILE MILLS LTD. 83.02 73.91 90.91 85.71 100

BANGLDESH LEAF TOBACCO LTD. 58.49 56.52 54.55 50 100

SOMORITA HOSPITAL LTD. 56.6 56.52 54.55 42.86 100

NILOY CEMENT INDUSTRIES LTD. 58.49 60.87 45.45 50 100

BEXIMCO SYNTHETICS LIMITED 73.58 78.26 72.73 57.14 100

GLAXO WELCOME (BD) LTD. 67.92 69.57 72.73 50 100

SAJIB KNITWEAR GARMENTS LTD. 56.6 52.17 54.55 50 100

MEGHNA VEGITABLE OIL INDUSTRIES LIMITED

64.15 69.57 54.55 50 100

PRIME TEXTILE SPINNING MILLS LTD. 58.49 52.17 63.64 50 100

Tallu Spinning Mills Ltd. 77.36 78.26 81.82 64.29 100

46

Appendix C (Continued) Disclosure of Information as per accounting standards by the sample companies by categories

Name of the Companies

% Overall % BSI

% ISI

% MVM

% IHS

BEXIMCO INFUSION LTD. 50.94 52.17 45.45 35.71 100

AMBEE PHARMACEUTICALS LTD. 56.6 60.87 45.45 42.86 100

ANWAR GALVANIZING LTD. 56.6 52.17 63.64 42.86 100

STANDARD CERAMIC INDUSTRIES LTD. 84.91 82.61 81.82 85.71 100

HILL PLANTATION LTD. 94.34 100 81.82 92.86 100

NATINAL TEA COMPANY LTD. 94.34 95.65 90.91 92.86 100

MONNO CERAMIC INDUSTRIES LIMITED 90.57 91.3 81.82 92.86 100

KAY AND QUE (BD) LTD. 73.58 73.91 63.64 71.43 100

BENGAL BISCUITS LTD. 67.92 73.91 63.64 50 100

DHAKA FISHERIES LTD. 71.7 73.91 72.73 57.14 100

CHIC TEX LIMITED 50.94 52.17 45.45 35.71 100

BANGLADESH GENERAL INSURANCE LIMITED

60.38 56.52 63.64 50 100

BANGLADESH MONOSPUL MGT. CO. LTD.

50.94 52.17 45.45 35.71 100

ALLTEX INDUSTRIES LTD. 81.13 82.61 72.73 78.57 100

DULAMIAH COTTON SPINNING MILLS LTD.

62.26 69.57 45.45 50 100

AGRICULTURE MARKETING COMPANY LTD.

81.13 86.96 81.82 64.29 100

ATLAS BANGLADESH LTD. 64.15 65.22 54.55 57.14 100

BEXIMCO KNITTING LTD. 66.04 60.87 72.73 57.14 100

SINGER BANGLADESH LTD. 77.36 73.91 81.82 71.43 100

NATIONAL TUBES LTD. 60.38 60.87 54.55 50 100

FU-WANG CERAMIC INDUSTRIES LTD. 56.6 56.52 45.45 50 100

BEXIMCO DENIMS LTD. 66.04 65.22 63.64 57.14 100

BANGLADESH EXPORT IMPORT CO. LTD. 71.7 73.91 81.82 50 100

MEGHNA CEMENT MILLS LTD. 56.6 60.87 54.55 35.71 100

AZIZ PIPES LTD. 66.04 69.57 63.64 50 100

MITA TEXTILES LTD. 54.72 52.17 54.55 42.86 100

DELTA MILLERS LTD. 62.26 65.22 54.55 50 100

CMC KAMAL TEXTILE MILLS LTD. 35.85 39.13 18.18 21.43 100

CHITTAGONG CEMENT CLINKER GRINDING CO. LTD.

60.38 56.52 72.73 42.86 100

AMAM SEA FOOD INDUSTRIES LTD. 73.58 65.22 63.64 85.71 100

BANGLDESH THAI ALUMINIUM LTD. 83.02 78.26 81.82 85.71 100

MODERN INDUSTRIES (BD) LTD. 56.6 56.52 45.45 50 100

EASTERN CABLES LTD. 58.49 56.52 54.55 50 100

OLYMPIC INDUSTRIES LTD. 75.47 69.57 72.73 78.57 100

47

Appendix C (Continued) Disclosure of Information as per accounting standards by the sample companies by categories

Name of the Companies

% Overall % BSI

% ISI

% MVM

% HIS

EASTERN LUBRICANTS LTD. 50.94 47.83 45.45 42.86 100

PERFUME CHEMICAL INDUSTRIES LTD. 54.72 60.87 45.45 35.71 100

CONFIDENCE CEMENT LTD. 54.72 56.52 45.45 42.86 100

SONAGOAN TEXTILE MILLS LTD. 56.6 60.87 54.55 35.71 100

MONNO JUTE STAFFLERS LTD. 58.49 47.83 72.73 50 100

BENGAL FINE CERAMICS LTD. 64.15 60.87 72.73 50 100

AFTAB AUTOMOBILES LTD. 67.92 65.22 72.73 57.14 100

EASTERN HOUSING LTD. 67.92 65.22 72.73 57.14 100

APEX SPINNING AND KNITING LTD. 67.92 69.57 72.73 50 100

NATIONAL TEA COMPANY LIMITED 64.15 60.87 72.73 50 100

GQ BALL PEN INDUSTRIES LTD. 73.58 78.26 72.73 57.14 100

ARAMIT LIMITED 62.26 56.52 72.73 50 100

USMANIA GLASS SHEET FACTORY LTD. 75.47 78.26 81.82 57.14 100

Appendix D Table showing the items of information disclosed by the number of sample companies

Item No. No. of Companies Items of Information ITEM31 10 Significant inter company transaction ITEM14 13 Long Term Contracts ITEM12 17 Investment in subsidiary and associated ITEM13 18 Market value of securities ITEM45 18 Consolidation Policy (if any) ITEM02 18 Marketable Securities ITEM49 21 Changes in Accounting policy and their e ITEM30 23 Usual charges and credits ITEM41 23 Subsequent events after Balance Sheet Date ITEM42 26 Gains and losses on disposal of property ITEM40 26 Extraordinary items

ITEM34 39 Gains and losses on disposal of assets ITEM44 42 Commitments and Contingencies ITEM11 46 Long-term Investments ITEM09 48 Intangibles (R & D, Patents, Goodwill, e ITEM16 50 Current portion of long term liabilities ITEM27 53 Income from investment ITEM43 60 Pension costs and retirements plans ITEM26 60 Interest expense ITEM07 62 Other Long-term assets ITEM15 66 Payables ITEM03 69 Receivables ITEM46 70 Translation of Foreign Currencies ITEM38 80 Reserve Accounting ITEM29 83 Tax expense ITEM08 85 Accumulated Depreciation

48

ITEM21 88 Long-term liabilities ITEM19 88 Dividend Payable ITEM20 89 Deferred Revenues and advances from customers ITEM17 94 Bank loans ITEM18 94 Provisions for taxes ITEM37 98 Taxes ITEM33 100 Repairs and Maintenance ITEM28 101 Interest expense ITEM47 102 Methods of Revenue Recognition ITEM48 103 Inventory valuation method ITEM04 104 Inventories ITEM32 104 Net Income

Appendix D (continued) Table showing the items of information disclosed by the number of sample companies

Item No. No. of Companies Items of Information

ITEM35 104 Depreciation of assets

ITEM39 104 Depreciation policy

ITEM25 105 Sales and other operating revenues

ITEM01 106 Cash in hand and banks

ITEM06 106 Property, Plant and Equipment

ITEM22 106 Shareholders' capital

ITEM23 106 The number or amount of share

ITEM24 106 Reserves and surplus

ITEM36 106 Basis of Overall valuation

ITEM50 106 Name of the company

ITEM51 106 The country of incorporation

ITEM52 106 The balance sheet date

ITEM53 106 Brief description of the nature and activities of the companies

ITEM54 106 Corresponding figure of proceeding

ITEM05 106 Advance Payment of Expenses