forma # 1 - icab - mr. ahmed raihan shamsi fca p : ... 49 some quotable quotes on the stock market p...

CAPITAL MARKET :RISKS & OPPORTUNITIES

Quarterly Journal of the Institute of Chartered Accountants of Bangladesh

January-March 2011Vol. 69 No. 40

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January-March 2011 | V

ol. 69 No. 40

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EDITORIAL BOARD

The Bangladesh AccountantThe Bangladesh AccountantQuarterly Journal of the Institute of Chartered Accountants of Bangladesh

The Bangladesh Accountant

January-March 2011, Volume: XI, Issue: 01

A Quarterly Journal of

The Institute of Chartered Accountants of Bangladesh

Designed & Printed By : ROOT Marketing Services

P : 02 EditorialP : 03 President’s DeskP : 05 Institute’s News

ARTICLESP : 13 Bangladesh Capital Market Opportunity Still Knocks - Mr. Ahmed Raihan Shamsi FCA

P : 19 Avoiding Losses in the Share Market - Mr. M. Farhad Hussain FCA

P : 22 State of the Bangladesh Economy in Fiscal Year 2010-1011 - Centre for Policy Dialogue (CPD)

P : 41 Fundamentals to Safeguard Investment in the Capital Market - Mr. Biplob Kanti Banik ACA

P : 45 Capital Market Review - IDLC Magazine

P : 49 Some Quotable Quotes on the Stock Market

P : 55 Who says Accountants are Boring People! - Mr. Sohel Kasem, FCA

P : 59 Corporate Social Responsibility (CSR) - Mr. A Wahab FCA

P : 63 The Flowering of Kaizen - (Extract from G4S International)

P : 65 Opportunities and Challenges for Adoption of IFRS for SMEs in Bangladesh - Md. Shahadat Hossain FCA

P : 69 STUDENTS’ SECTION

Tips for C A Students - Sanjida Kasem FCA, FCMA ICAB New Curriculum

Circular on Examination Structure and Conversion Criteria

Chairman

Akhter Matin Chaudhury FCA

Associate Editor

Harun Mahmud FCA

Members

Md. Abdus Salam FCA

Masih Malik Chowdhury FCA

M. Farhad Hussain FCA

Md. Humayun Kabir FCA

Md. Shahjahan Majumder FCA

Amanullah Khan FCA

Fazle Rabbi Mohammed Hasan FCA

Md. Nurul Haque FCA

Kazi Ehsanul Huq FCA

Kanai Lal Saha FCA

Md. Harun-or-Rashid FCA

Md. Akbar Hossain FCA

Md. Moniruzzaman FCA

M. Abu Bakar FCA

Mohammed Jashim Uddin FCA

Abu Muhammed Saiful Islam FCA

Md. Abid Hossain Khan ACA

Kishower Amin ACA

Shafiq Musharrof ACA

Sujit Kumer Das ACA

Zareen Hosein ACA

Chairman – DRC-ICAB

Chairman – CRC-ICAB

Member Secretary: Secretary-ICAB

N I Chowdhury FCA

ORIALEDIT

The Institute of Chartered Accountants (ICAB) is the premier accounting body in the Country. It is the thought leader in accounting matters and is charged with upholding the highest standards of the accounting profession in Bangladesh.

ICAB has come a long way since its inception. The Institute has produced highly skilled accountants. The qualification it offers is highly prized. The letters ACA and FCA are a matter of great pride for all those whose privilege it is to suffix these to their names. ICAB membership boasts leaders in every sphere of the national life of Bangladesh. The geographical spread of its membership is impressive with significant presences in UK, North America, the Middle East, Africa and Asia.

Recently, under a twinning project, the syllabi and examination system of the Institute have been elevated to that of the Institute of Chartered Accounts in England and Wales, the premier global accounting body. It is a matter of great

pride that the qualifications of those who pass under the new system will be recognised in England and Wales.

The quarterly Journal of the ICAB does an admirable job of disseminating professional information to its members and keeping them abreast of the latest developments in the accounting profession. The publication has to keep pace with changing times and evolve to fulfil its onerous responsibilities. It must remain relevant to its readership at all times. The Journal should not only inform and educate but also be an attractive and interesting purveyor of its contents. It is in this spirit that the Journal sports a new look.

The contents of the Journal have also been planned to cater to the needs of a broad range of professional interest. It should also be a medium for debate and a melting pot of opinions and views on matters of professional interest and interpretation. A dearth of material, however, often impedes the ideal mix. Members are therefore requested to contribute material for future issues. It is

also intended that the Journal should appeal to wider readership including corporate bodies, executives and decision makers. A subscription drive to enrol such stakeholders will be conducted soon. It is particularly intended that students of chartered accountancy would find the Journal useful in their pursuance of qualification. Towards this end, each issue will contain a special section for students. We hope this will encourage them to subscribe to it. As a further incentive, the Journal is being offered to students at a very special rate.

The Editorial Board hopes that you will enjoy reading the Journal and continue to benefit from it. Your feedback would be appreciated.

Akhter M ChaudhuryChairman, Editorial Board

The Perspective Plan and

the Roadmap to Vision 2021

January - March 2011 The Bangladesh Accountant02

“

From the Desk of the President

Focusing on Members

The Bangladesh Accountant January - March 2011 03

“The Accountants,” ICAB’s quarterly journal has undergone a makeover and adopted a new look with the current issue. Credit goes to the Editorial Board Committee for the initiative. I thank the committee for regularly providing a space in the journal from now on for the ICAB President.

ICAB was established under the Bangladesh Chartered Accountants Order 1973 as a supreme and sovereign regulator of the accounting profession of the accountants. Its membership has grown from 78 to more than 1400 over almost four decades. This figure includes 34 female

members. As the institute and its membership grow, we have to work more effectively as a body to address the needs of our members and communicate with each other to strengthen our profession.

As president, my first task was

to review and form committees for 2011. Through review, Professional Development committee for Women was merged with Professional Development committee of the Council. In addition, five new non-standing committees were formed for professional advancement. Each committee is chaired by a member of the council. The chairman will be responsibile to ensure that committee views are ascertained on key policy issues and clearly communicated to the council. Addition of new committees increases workload of the secretariat. We are working to overcome this limitation by

ensuring that the committee chair and members work more proactively and regularly follow-up with the secretariat.

Every chartered accountant has the responsibility to uphold the integrity of our profession. We as

professionals have to be prompt but transparent in sharing information with ICAB, our clients, our prospective clients as well other stakeholders. Quality Assurance Board (QAB), a committee and monitoring cell of ICAB is working to identify areas of improvements of member firms to ensure adequate transparency in information sharing. Our Investigation Disciplinary committee is contributing to ensure that our members are held to the highest standards of professionalism and integrity.

My goal is to strengthen ICAB’s capacity at par with

any other professional accounting body globally. In order to do so, ICAB has to be managed in a more businesslike manner. Currently, the secretariat are not able to fully serve the needs of our members due to lack of resources and effective

Every chartered accountant has the responsibility

to uphold the integrity of our profession”


management and communication. There are many members who do not feel that the Institute is meeting their needs effectively. We are striving to improve communications between the secretariat , members and council members. We are also using technology including e-mail and SMS to enhance communication with members.Till now most of our communications with members has been by way of paper, which is expensive and time consuming and often becomes a challenge to deliver timely. The solution is to go paperless and move to electronic communications. Unfortunately, not all members and particularly those outside Bangladesh, have furnished their email addresses to ICAB. I urge all resident and non-resident members to send their email addresses, which could also be included in the latest members’ handbook. I respect the decision of any

member who may prefer traditional paper communication and they should inform the secretariat about their option of choice.As chairman of the Information Communication Technology (ICT) committee in 2010, I introduced SMS communication with members regarding meetings and seminars.

Any member not currently availing this facility, if is interested in doing so can forward his/ her mobile number to ICAB to join the SMS list. If a member does not wish to publish his/ her contact information in the members’ handbook, s/he should inform ICAB about his/her decision in the correspondence.

ICAB currently has a website to which the ICT committee has brought some improvement. An ICT sub committee is coordinating the effort to bring more change to the design and

introduce new content to the website. I will provide a more detailed update to our members at a later date on digital technology based initiatives of ICAB.In my year in office, I will give my best effort to serve our members and enhance communications and information flow among ICAB, its members and other stakeholders. As capacity of ICAB is strengthened, the office bearers, council members and secretariat can support our members to cope with challenges of the profession in an information-based society.

Ms. Parveen MahmudPresident, ICAB

I n s t i t u t e ’ s N e w s

In This Section

P:06 CPD Seminar

P:09 Professional Matters

P:11 Celebrations


“Accountability of the energy sector should be increased and we need a uniform accounting system to ensure greater accountability of the sector. This is a complex issue because we are generating electricity using different types of fuel and selling the electricity at different rates to different users. That is why we need a uniform system of accounting” said the Chief Guest Mr. Muhammad Faruk Khan MP, Hon’ble Commerce Minister, GoB, at a CPD Seminar on Introduction of Uniform Energy Accounting in Bangladesh organized by the Institute of Chartered Accountants of Bangladesh (ICAB) on 22 January 2011.

Mr. Mesbah Ul Alam, Secretary, Ministry of Environment and Forests, GoB, was present as Special Guest.

Mr. K Z Islam FCA, Past President, ICAB, conducted the seminar as Session Chairman.

Dr. Jamaluddin Ahmed FCA, Council Member & Immediate Past President, ICAB, presented the keynote paper.

Mr. Muhammad Faruk Khan MP, Hon’ble Commerce Minister, GoB, said that the power sector is expanding very fast and a large amount of electricity is going to be added to the national grid in the near future. As such there may

Uniform Accounting a must for Energy Sector

be problems with the accounting of the sector if there is no uniform system in place. Moreover, there are subsidies and other issues involved in energy accounting. A clear accounting system for this sector is needed. Ms. Parveen Mahmud FCA, President of the Institute, in her address of welcome said that the theme of the seminar is very important in the context of the current state of the power and energy sector in the Country. “We are holding this seminar at a time when the Government of Bangladesh is working to utilize all its resources to achieve its vision to raise Bangladesh to a middle income economy. The President expressed ICAB’s appreciation of Bangladesh Energy and Regulatory Commission’s efforts to introduce uniform energy accounting practices. She also welcomed the Commission to collaborate with ICAB to introduce such uniform accounting practices.

Mr. Mesbah Ul Alam in his speech said that Energy Accounting System is a process for recording, tracking and reporting the amount and costs of the various consumables used by commercial scale facilities. It involves the establishment of a data base for storing historical information on electricity, natural gas, other fuels, water etc. He declared that one cannot manage what one cannot measure.

Accountants should propose a system of measurement that eliminates inconsistencies and balances limited resources with unlimited demand. Such a system should help regulators and administrators take better decisions. Successful development of the sector is predicated upon a reliable and rational accounting system and accountants have the capacity to help management to optimize resource utilisation.

Dr. Jamaluddin Ahmed presented the paper in which he succinctly described the Information needs for Public Service Regulation, Uniformity in Accounting for Energy, Core issues in Uniform Energy Accounting, Scope of a Regulatory Accounting System and Development of Uniform Energy Accounting in Bangladesh.

Mr. K Z Islam said “There is no denying that a uniform system of energy accounting is needed. There are discrepancies and we have a lot of problems with energy and its accounting and auditing. It is a fact, though, that it is very difficult to have a uniform accounting system in the energy sector as energy in Bangladesh is produced from many different sources”.

Mr. Md. Shahadat Hossain FCA, Vice President, ICAB thanked everyone for participating in the seminar and for sharing their views on the topic.

Commerce Minister at ICAB Seminar


Dr. AB Mirza Md Azizul Islam, Former Adviser for the Ministry of Finance and Planning to the Caretaker Government of Bangladesh urged ICAB members to support the initiative to form a financial reporting council which would ultimately help enhance the discipline of the CA firms. “Although the initiative to form an independent financial reporting council has been taken a long ago, it is yet to be materialized because of resistance by some vested interest”, said Dr. Azizul Islam, who was also the Chairman of Capital Market regulator Securities and Exchange Commission (SEC) speaking as the Chief Guest at a CPD Seminar on the Role of Capital Markets and Chartered Accountants held on Monday, 21 March 2011 at ICAB Auditorium in Dhaka.

He said that some Chartered Accountants (CA) firms have failed to perform their duties appropriately.

“In the past, some CA firms failed to perform their duties appropriately. In most cases, ICAB failed to take proper measures against those errant firms as there might be some conflict of interest involved,” said Mirza Aziz, urging

An IFRC can ensure properperformance of CA Firms

ICAB members to support the initiative to form a financial reporting council.

About the stock market Mr. Aziz said “Stock market analysts identified deep collusion among market stakeholders as a major setback that distorts that capital market and takes it to dizzy ling heights in signs of high volatility. Ms. Parveen Mahmud FCA, President-ICAB in her address of welcome said capital market is a market for securities, where business enterprises can raise long-term funds.

Chartered Accountants work in all fields of business and finance. Some are engaged in public practice work, others work in the private sector and some are employed by government bodies. Chartered Accountants play the role of auditor to the company tapping the capital markets. They can also play the role of an advisor to the company tapping the capital markets. They are working for SEC or Stock Exchanges and play regulatory role. In fact they have a lot of roles to play in the field of capital market.

We need to strengthen corporate governance in listed companies,

analyze their performance, identify their weaknesses and take responsible measures. We are genuinely embarrassed when fingers are pointed towards accounting professionals for distorting market information. We have to be more responsible in our professional services. In this regard, the Quality Assurance Board monitoring cell and the Investigation Disciplinary Committee of ICAB are determined to ensure that its members look beyond self interest to uphold the profession’s integrity.

Past President Mr. A K Chowdhury FCA conducted the session as Session Chairman. A lively floor discussion took place after presenting the theme paper by Mr. Ferdouse Ahmed Khan FCA. Mr. Md. Abdus Salam FCA, VP, ICAB said that CA firms can play different roles in the capital market. They can perform the duties of the regulator as well as adviser for the companies. He thanked everyone to share their views through this seminar while offering vote of thanks at the end of the seminar.

Dr. AB Mirza Md Azizul Islam


The Institute of Chartered Accountants of Bangladesh (ICAB) organized a CPD Seminar on “IT Enabled Systems: Opportunities and Challenges for Assurance Professionals” on Thursday, 31 March 2011 at ICAB Auditorium, Chartered Accountant Bhaban, 100 Kazi Nazrul Islam Avenue, Kawran Bazar, Dhaka-1215.

Mr. Mustafa Jabbar, President, Bangladesh Computer Samity graced the occasion as Chief Guest.

Mr Abbas Uddin Khan FCA, Past President, ICAB conducted the Seminar as Session Chairman.

Mr. Aniruddha Neogi, FCA (ICAI), CISA, CGEIT, CRISC Director, Monitoring Evaluation & Internal Audit, ICDDR,B presented the keynote paper.

Parveen Mahmud FCA, President, ICAB in her address of welcome said that our vision is to build a Digital Bangladesh within 2021. So it is essential to enrich the ICT sector through developing software industry and IT services.

Management Accountants, Auditors haveto be more conversant with IT, Internet

She said management accountants, auditors and academicians will become more knowledgeable and conversant in the design, operation and control of accounting information systems through increased use of Information Technology and Internet.

Auditors should update themselves to evaluate and safeguard assets and maintain data integrity through computer systems. To properly evaluate the potential risks, accountants and auditors must be familiar with current and emerging information technologies, she added.

The ICAB President said, it is thought-provoking whether we are providing our students and future accounting professionals with a framework to understand the need for IT security and to address the threats.

In ICAB and in firms, necessary computer facilities are not available for all students and trainees as required. So ICAB has included theoretical programme for students’ syllabuses for IT

knowledge and IT application that have been written by ICAEW following IFAC requirements and agreed by ICAB, she added.

Mr. Mustafa Jabbar in his speech thanked ICAB for entering the digital era and appreciated the creative role in the ICT sector. He said Information Technology is the key to development. Digital Bangladesh should not be only for a certain group of people or a section of society. It should benefit all.

As one of the founders of Bangladesh Computer Samity (BCS), Mr. Jabbar highlighted the activities of BCS. He said BCS is playing a leading role in flourishing ICT and popularising the use of computers in rural areas through motivation. He said ICAB has gone one step ahead in the society by introducing ICT in its exam system. This effort will not only benefit ICAB, but also others concerned. The seminar ended with a vote of thanks.

- President, ICAB


“This is a golden scope to be the member of ICAEW by attending the new syllabus. We all should take this opportunity and maintain the quality of the syllabus related to ICAEW”, Ms. Parveen Mahmud FCA was urging in the Orientation Programme while delivering her address of welcome. She said that new ICAB curriculum based on ICAEW curriculum has already been introduced from January 2010 and examinations under new curriculum were started from May-June 2010. She also informed the audience that The Institute of Chartered Accountants of Bangladesh (ICAB) and the Institute of Chartered Accountants in England and Wales (ICAEW) have been rigorously working to strengthen the accounting profession for compliance and practices of the standards and codes in the corporate sector. In

October 2009 the ICAB signed a Memorandum of Understanding (MOU) with the ICAEW.

Mr. Md. Abdus Salam FCA, Vice President, ICAB elaborately explained the new syllabus by showing power point. He said that this is the seven syllabus we have started implementing since January 2010. It is very much necessary to disseminate this kind of orientation, he added. Mr. Salam said that a new curriculum and examination system introduced by the Institute has been highly applauded by the corporate sector of the country and opined as parallel to the curriculum of world class accounting bodies like the Institute of Chartered Accountants in England and Wales (ICAEW).

Mr. N I Chowdhury FCA, Secretary of the Institute said that ICAB is contributing profusely to

establishing an enabling environment for a transparent and accountable financial culture. He said that the new ICAB Curriculum and the examination system which he predicted will elevate the status of ICAB to the rank of the world class accounting bodies. This programme was conducted by Mr. A S M Nayeem FCA.

Orientation Programme for Teachersand Students on New Curriculum

January - March 2011 The Bangladesh Accountant10 January March 2011 The Bangladesh Accountant10

A Delegation of the Institute of Bangladesh (ICAB) made a courtesy call with Mr. A S M Alamgir Kabir, Chairman, Power Development Board (PDB) at his office on 01 March, 2011. Mr. Abbas Uddin Khan FCA, Member Council & Past President led the ICAB delegation which included Mr. Md. Abdus Salam FCA, Vice President, Mr. Md. Abu Taleb Talukder FCA and Mr. AKM Aminul Hoque FCA, Members-ICAB, The delegation informed the PDB Chairman that ICAB can play a very useful role if opportunities are offered. ICAB could provide professional services to PDB in designing a control device in collaboration with the PDB authority to reduce the system loss.

Mr. Md. Faszlul Hoque, Member Finance, PDB was also present at the meeting.

A delegation of the Institute of Chartered Accountants of Bangladesh (ICAB) made a courtesy call on Md. Ghulam Hussain, Secretary, Ministry of Commerce, GoB at his office on 23 March, 2011. The ICAB delegation was led by Ms. Parveen Mahmud FCA, President, ICAB. Other members of the ICAB delegation were Mr. Md. Abdus Salam FCA, Mr. Md. Shahadat Hossain FCA, Vice Presidents, ICAB and Mr. N I Chowdhurey FCA, Secretary-ICAB.

The ICAB delegation informed the Secretary, that as a member of different International and Regional Accounting Bodies, ICAB is playing a very vital role to improve the accounting and auditing standards, corporate management and governance, financial reporting standards and ethical issues related there with in Bangladesh.

Mr. Md. Showkat Ali Waresi Joint Secretary, MOC and Mr. ATM Murtozaa Reza Chowdhury, NDC, Additional secretary, MOC were also present at the meeting.

A delegation of the Institute of Chartered Accountants of Bangladesh (ICAB) led by Ms. Parveen Mahmud FCA, President, ICAB called on Dr. Mohammad Tareque, Finance Secretary at Bangladesh Secretariat on 10 January, 2011. She apprised the Secretary about the various activities and recent developments of the Institutes particularly about MoU and some other activities under this.

She highlighted the role of Chartered Accountants in the financial scenario of the country.

The Secretary, Ministry of Finance gave a patient hearing to ICAB delegates and assured all possible cooperation. The delegation included Mr. Md. Shahadat Hossain FCA, Mr. Nasim Anwar FCA, Vice president, ICAB and Ms Suraiya Zannath Kahn FCA, Senior Financial Management Specialist, The World Bank.

A ICAB delegation led by Mr. Abbas Uddin Khan FCA, Member Council & Past President, ICAB made a call with Chairman, PDB

Ms. Parveen Mahmud FCA, President, ICAB giving a short brief on the proposals were made during the

meeting time

Dr. Mohammad Tareque, Finance Secretary, GoB, (extreme left) is seen with ICAB delegation


The annual picnic of DRC, ICAB, was held on 14 January 2011. It was all fun and pleasure for about 400 picnickers who were enthralled by the natural beauty of the venue-“Rangamatia Water Front” located some 45 km from Dhaka at Gazipur.

On the eve of the picnic, Ms Parveen Mahmud FCA, President ICAB, delivered a message in which she said “ICAB Picnic is essential recreation and serves as a happy and joyous occasion for all of us. It promotes fellowship and social interaction amongst us and our families which goes a long way towards strengthening our professional bonds. I am sure the scenery of “Rangamatia Water Front” will be greatly invigorating and will refresh us with a new zeal of life”.

A two member team comprising Dr. Afra Saijad, Head of Education, ACCA Pakistan and Ms. Mohua Rashid, Country Manager, ACCA Bangla-desh called on the ICAB President, Ms. Parveen Mahmud FCA on 7 February, 2011.

The Meeting was focused on “Perspective of ACCA’s support to ICAB in the areas of tuition and teachers training”. They discussed ways and means of supplementing the existing training facilities for ICAB students.

A Meeting between ICAB and ICAEW represen-tatives was held on 10 March, 2011 at ICAB Mini Conference Hall. Some important issues were discussed in the meeting. The meeting was discussed about the working plan of ICAB and ICAEW to strengthen ICABV capacity building in Technical and Learning and profession develop-ment.

A ICAB team headed by Mr. Md. Shahadat Hossain FCA, paid glowing tributes for the Martyrs by placing wreaths at Central Shahed Minar on 21st February and at National Smriti Shoudha on 26th March, 2011 respectively

“It’s a Gilded Egg!” somebody shouts and everyone rushes on investing in the share market hoping to multiple their investment in a short time. What really made them invest with such zest and cause an amazing growth figure of 81.47% in DSE general index in 2010?

In 2010 alone, the share market of Bangladesh has experienced BDT 4,009 Bn annual turnover, BDT 3,508 Bn market capitalization, 52.2 Mn trade and 3.2 Mn BO accounts instigating the most ever vibrant period of share market in the history of Bangladesh . This is not just some “one fine morning” story. The market has been

developing immensely in last few years and particularly in 2010, some added factors triggered this upsurge. If we look back, the market capitalization has increased significantly over the years; the market cap to GDP ratio stood at 50.8 % in 2010 from 5.18% in 2005 . This is too good in too short span of time to sustain.

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2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11

DSE Market Capitaliza on over the Years

DSE M Cap Market Cap as % of GDP

Note: GDP for 2009-10 is considered for 2010-11 Market Cap. as percentage of GDP calcula on

As of March 02, 2011 Market Cap of DSE is 38.9% of the Bangladesh’s GDP (2009-10)


Bangladesh Capital Market Opportunity Still Knocks

Ahmed Raihan Shamsi FCA


DSE actually has outperformed other markets in terms of growth & performance in recent years. If DSE is put in a comparative analysis table (Graph-2), it is evident that this unusual growth created anomaly in

the market, especially in the year 2010. Reflection of this can be easily traced to the lower dividend yield percentage and higher average price/book value ratio compared to other major markets of Asia. This growth did not continue for long; the fall came and it came hard. The sudden market crash came like a bolt from the blue for everyone involved.

Why such huge rise & massive fall?

The unusual growth experience was not caused by one single force. These varied from a range of some basic economic theory all the way to the mindset of the low volume Retail Investors.

• Basic equation of demand supply created the bubble in the market. Demand of shares increased with the supply

lagging far behind. This is evident from the oversubscription status of any IPO floated in the market.

• Merchant banks invested heavily in the market as they had the knowledge and opportunity to do fundamental and technical analysis to gain an upper hand from the retail investors. This knowledge allowed them to make abnormally high profits and this is reflected in the hefty profit figures of 2010.

• Lack of effective monitoring from market regulators encouraged the market to take risky bullish trend without senses around.

• Commercial banks reduced the interest rate on fixed and savings deposit from 14-15% in 2008 to 9% in 2010 . Also Tax was imposed on Govt. Saving certificates. This forced the general investors to look for an alternative source and eventually ending up investing in the share market which was showcased to them as much faster money making way- similar somewhat to a Casino!

• Almost all Private Commercial Banks were focused on establishing their Merchant Bank Unit and billions of taka were invested to gain “quick return” from a heated market. Even industrial loans were invested in share market which went on for some time beyond the radar of Bangladesh Bank, SEC and other regulators.

• Investment of black money was encouraged in the capital market during the Annual

DSE Rela ve Performance (Rebased)


Budget for the sake of so called economic development of country.

• Government withdrew the imposition of tax on individual investment in share market after the budget. Tax on Institutional investment was kept at insignificant level.

• Brokerage houses increased Round Table from The Daily Prothom Alo, 30-1-2011 their branch offices throughout the country to facilitate the entrance of new retail investors into the market. 238 brokerage houses of DSE opened 590 branches in 32 districts. Most of the new entrants lack the basic knowledge of share market and only has the intention to make “quick money”. The total no of BO accounts stood at 3.2 mn at the end of 2010 with a 45% growth in 2010 alone.

• 27 out of 35 “shares split” had abnormal gain (ranging from 5% to 70%) for almost no reason. Investors went for share purchase whenever there was news for share split. No concern was raised by any responsible corners.

• 26 out of 32 shares dematerialized had abnormal return (ranging from 5% to 304%); this also led to unnecessary hike in price.

• 18 new IPOs were listed during 2010 with a total of BDT 11,700 Mn in public offering. This has given the stock market an organic growth by increasing the supply side and depth.

• 23 companies raised BDT 28,194 Mn through right share

issue in 2010. Abnormal gain was observed among 11 shares (ranging from 11% to 58%)

From all these sources, lot of money got injected into the Capital Market, and obvious result was too much money was chasing too few already overpriced shares in the market. The stock market crossed the threshold in 2010 where it could no longer sustain. Merchant banks, Brokerage houses, Asset management companies and high net worth investors - everyone realized this and went into securing their investment in Q4 2010. Sell side started to gain momentum in the market. SEC and Bangladesh bank, even though realizing the overheated state of the market much earlier started taking strict measures when profit booking has already started rolling in the market. SEC took some restrictive measures by reducing the margin loan ratio and the individual and Merchant Bank credit limit. Bangladesh Bank went hard on the banks regarding their exposure in the capital market. It also increased the CRR from 5.5 to 6% to reduce the money supply . All these measures transmitted a red alert signal in the minds of the retail investors resulting into massive panic sales by the investors.

The Challenges faced by our Capital Market

1.Supply constraints: Bangladesh has only 219 equity shares traded in the market. Whereas our neighboring countries have a good no of equity shares traded in the market like India has 3751, Pakistan 599, Srilanka 243, Indonesia 406, Vietnam 372. This supply side constraint generates excess liquidity problem and enhances the scope of price manipulation in the market.

2.Rumor based investment decision: At present, the retail investors of our country lack systematic and fundamental based analytic investment process. They depend mostly on market rumors for investment. As a result, all the retail investors behave illogical and chase a certain company’s share based on rumors. Some deep pocket syndication reportedly spread rumors as part of their game.

3.Dominance of retail investors: The retail investors of our capital market comprise of 70% to 80% of the total market capitalization. This percentage is much lower in other developed markets of the world. Ratio of Institutional to Retail investor needs to be increased as Institutional investors bring stability through non speculative long term investments.

4.Coordination among regulators: SEC, Bangladesh Bank, Ministry of Finance and other related stake holders did not have enough coordination towards any given policy. This lack of coordination sometimes gives misleading indications to the market. Better management of the capital market in pace with global standards will not be possible without the coordinated efforts of the regulators.

5.Debt market: Our country does not have an established secondary debt /bond market. Due to this, the companies are unable to fund their short term requirements. The capital market can be made more vibrant and lucrative if this facility can be incorporated.

6.Existence of Syndicates: Our capital market has some deep pocket investor syndicates (often termed as ‘bull cartels’) who manipulates the market in their


favor. These large fund holding investors manipulate the market through price inflation by rumormongering after collecting a particular share at low price levels and religiously follow pump and dump strategy.

The Brighter Side of the Story: Opportunities ahead of us

1.Confidence: Confidence of the investor is still prevalent in the market as IPOs are still of oversubscribed. This entails the necessity to transmit the confidence among the investors by SEC and stock exchanges in the secondary market as well.

2.Scope of Investment: There are a lot of shares with good PE ratio, historical lowest market price and good Net Asset Value (NAV). These factors all indicate that there is good investment opportunity. There are people

who did not consider capital market as their investment opportunity. These people can direct some portion of their savings in this market and gain profit.

3.Implementation of Basel II: Banks have to raise capital based on this criteria set by Bangladesh Bank. Issuance of debt and equity by banks is their only option and this will generate liquidity in the market.

4.Infrastructural development: Government of Bangladesh has taken various initiatives to

develop the infrastructure of the country. Power and transportation sectors have been given priority. Padma bridge, Bangabandhu bridge and various power plants will be built and these projects require a lot of fund. Capital market can facilitate the funding with various types of securities and instruments issued.

5.Book building: This procedure is a tested and accepted price discovery method in the developed capital markets of the world. It has received some

criticism lately due to making issue price of the listed security too high and hence, is being reviewed by SEC. To encourage the large and well reputed corporate houses of the country to get listed in the exchanges, there is no alternative to this method as it ensures that the company gets its fair price while floating shares. However, Regulators need to be more vigilant in order to check manipulation/staging of planned games.

6.Mutual funds: Recently SEC gave permission to offload BDT 5 Bn mutual fund- First Bangladesh

Fixed Income Fund (FBFIF). Decisions like this will definitely improve the stability of the market. As of December 2010, the market cap of mutual funds stands at 1.45 % , which is significantly lower in terms of other Asian markets. Mutual funds are managed by expert fund managers and they usually buy shares at bargain (undervalued) price levels. Hence, in a bear market, they boost up the demand for strong fundamental shares and helps the market stabilize. We need more mutual funds in the

market given we can ensure increase in the supply side of quality shares.

7.Tax Incentive: Banking, Financial and Telecommunication companies are not given incentive by way of tax rebate for giving high dividend to share holders which is applicable for other sectors listed in the stock exchange. Tax Incentives will encourage these sectors to pay higher dividends which will contribute to improvement of the investors approach by shifting focus from short term capital gain to long term stickiness with good stocks.

“Emotions and habits play a vital role

in the investment process”


8.Capital gain: The capital gain made during this period is not transferred out of the country for our breath of relief. This is evident from the hefty profit figures of the Commercial Banks and Merchant Banks. Moreover, their growth in earnings is not relevant with the growth of the economy or even growth in LC opened. So, reinvestment of the money is possible in the market again. But it needs to be ensured that all institutions are making investment complying the regulations and not taking over exposures.

Let the Market attain its true potentials

As of 2 March 2011, the DSE General index stands at 5292 points with a dramatic fall from the highest point of 8,918 on 5 December 2010 . Retail Investors’ confidence over the market has been lost to great extent. Government and Regulators have been trying to up hold the market but a modest recovery is yet to be achieved.

In this context, the question arises how to stop the market from further fall. It is believed that the present market is big enough and cannot be manipulated by some gamblers like they did back in 1996. It took almost 14 years for the market to get to this height and it really has the strength and opportunities, both for investors and borrowers, to sustain. It is imperative to gain the confidence of the investors and take the market to a point of stability. Thereafter, the market is to be adjusted for the various anomalies that are inherent in it.

• Strengthening surveillance is a must for our capital market. Trading behavior analysis of Broker House, Merchant

Banks, and Mutual Fund companies needs to be performed by SEC. Various IT based automated systems are available in the market and some donor organizations / corporate houses will be interested to support SEC in this regard. Immediate arrangement and proper implementation of these systems will bring positive result in the market.

• An independent expert Judiciary Tribunal is to be created solely for capital market issues. Enforcement of regulation is to be ensured in the market. The existing laws can also be modified to ensure that any foul play can be punished in accordance to the impact. The share scam of 1996 is still not resolved and no disciplinary action has been taken till date. It gives room for the wrong doers to keep on spoiling the market without much fear of any punishment.

• Long term strategy should be adopted in consultation with all the stakeholders of capital market. A consolidated team approach is to be taken into consideration. Coordinated effort, positive market driven policies and prudent decision can make the market a good investment sanctuary.

• Efforts should be given to increase the number of listed securities ( from existing 219 equity shares) in the market. Offloading a good number of fundamentally sound and well reputed companies’ shares in the market will increase the depth of the market and strengthen the supply side. Mere offloading shares of non-performing State Owned

Enterprises ( SOE) will not scarcity of good shares .

• Lead time of ‘Application to Listing’ of a new company is to be reduced significantly. It takes on an average 2-3 months to complete the procedure in our country, compared to around 1-2 weeks in developed markets i.e. US, UK, Singapore, HK. This creates blockage of a lot of funds from the market. Unless the fund invested in one IPO is released, a small investor can not invest in open shares in the market. A move to cut the time frame between application and listing will benefit with higher velocity of invested fund in Capital Market Process simplification, adoption of IT based best practice and automation can help to faster execution of IPO, which will facilitate more IPOs to come to market.

• The market should focus on bringing in more institutional investors. These investors have long term commitment and provide liquidity to the market. Longer investment horizons reduce market volatility and their investment strategies are fundamental focused rather than being speculative.

• SEC should consider the flotation of more Mutual Funds in the market to increase its dimension. This fund has the capacity to provide retail investors with indirect market access, better prevention of wealth & capital losses, reduction of dependency on retail investor and induction of more institutional investors.

• Appropriate amendments of Companies Act and related


rules from SEC are required, allowing the company to buy back its own shares (section 58 of Bangladesh Companies Act states clearly that a company cannot buy its own shares). The UK companies act of 1955 disallowed companies from holding their own shares; however this was repealed in 1993. The Indian capital market has allowed buy backs since 1998. This option can reduce price volatility of a particular share in the market.

• Media can play a big role in directing the investors towards the actual learning from the recent disorder in the market. They should infuse confidence by disseminating information regarding existence of scope for knowledge based investment opportunity in the market.

• Modification is required in the index calculation procedure with International best practice. Under current method, a particular large cap company ends up with significant impact on the Index movement with slight movement in its share price. Free-float based index calculation can be the option for consideration. This step will reduce magnification of DGEN index with great extent.

• Investors should concentrate

more on individual shares rather than making decisions based on market index. Still there is scope of making money by investing in the shares that possess good fundamental and technical valuation. If a major portion of the investors realize this learning, significant amount of stability can be achieved even in this downpour.

• There is no alternative to analysis for participation in the capital market. Analyst Reports/Research Reports play a vital role in developed markets. Investors should realize that they are investing in stock being an equity partner of a company. They should go for a thorough health checkup of the company selected. There are a lot of ways to gather that knowledge from various institutions. Even SEC can arrange training programs at a large scale for investors in general. With the right knowledge and awareness built, the ‘syndicates’ will not be able to siphon out money capitalizing on the small investors’ ignorance.

• Political commitment towards the development of power, infrastructure and legislation. Improving these sectors will boost up industrialization in our country. If we look at the composition of all the scrips of our stock market, manufacturing sector comprises of only 22.21 % of the market capitalization. This percentage needs to be improved for a strong economic growth. Capital market can play a pivotal role in this regard.

Capital Market of Bangladesh, to us, is still ‘a mine of opportunity’. Still the market is suitable for investment as there are lots of value driven shares at a reasonable price. Investors should come forward with a mindset of making a long term investment. Gain and loss both come as a package in the investment game. Prudent decision making can enhance gain or reduce loss and this should be the objective of the investors in general.

True commitment by the concerned regulators and the present political government can improve the situation. Needful revision in the regulations with effective enforcement, automation in vigilance, encouraging analytical / research reports and creating better awareness can take our Capital Market to a structured level which can contribute significantly to the economic development.

(The author is thankful to Mr. AKM Sohan Alam and Mr. Khaled Maruf for their support)

The Author is Member, ICAB and Deputy CEO & Chief Finacial Officer ofGrameenphone Ltd.


Avoiding Losses in theShare Market

M. Farhad Hussain FCA

Patience, mathematics and due diligence to screen the stock are the secrets to avoid losses in the stock market. To reduce the chances of loss, you must minimize mistakes. Fewer the error made over your investing career, better the long term returns. Earning an extra percentage on your investment compounds into amazing amount in the long term.

The same holds true if you can avoid a loss. When you lose money, even for just a year, you slowly erode the terminal value of your investment. Losses also reduce the positive effects of compounding.

Losses occur primarily for three reasons:

1. You took a bigger risk and exposed yourself to a higher possibility of loss2. You invested in an instrument that failed to keep pace with inflation and interest rates3. You didn’t hold the instrument long enough to let its true intrinsic value to be realized

Please not the risk in getting into something without knowing about it.

It’s a sad fact that most day traders lose money over time. Research has clearly shown that long-term returns are tied to your holding periods and to the price you pay. Excessive trading and a disregard for fundamental risks serve as weighty anchor that keeps short-term oriented investors away from consistently performing well. Over time, most of their winning trades are likely to be eaten up by their losing trades.

The following is a list of top five rules for success in investment in shares:

Rule 1. Take a long-term perspective.

Rule 2. Keep adding money to the market and let the magic of compounding work for you.

Rule 3. Don’t try to time the market.

Rule 4. Stick to companies you understand. “When we invest in stocks, we invest in businesses.”

Rule 5. Diversify.Goleman’s theories of cognitive evolution have particular relevance for investors. Most of the sweeping developments in the fields of economics and finance, Mauboussin noted, were tested, applied, and taught within the past 40-50 years.

It has taken tens of thousands of years for us to catch up with our environment, it is fair to say that humans have no mental basis, or context, to understand how to invest in capital markets rationally.

This awareness of our limitations can help us avoid common stock picking errors. Investors tend to make seven common errors of judgment: 1. We have an innate desire to

be a part of crowd and feel safer making mistake with others than striking out on our own.

2. We suffer from overconfidence in our abilities.

“


3. We are unable to assess probabilities rationally.

4. We are easily lured by storytelling, especially when the story attempts to provide answers to pressing questions.

5. We want to rely on “rules of thumb” even in the absence of rigorous proof.

6. we ignore statistical truisms regarding chance and probability.

7. We believe that the intuitive skills possessed by some humans (successful stock pickers, for example) are readily transferable.

Emotions and habits play a vital role in the investment process.

The Stock Market is a place where million are made, it’s a place where the principle of taking from those that do not have (The poor and the not too Rich), and give to those who are already rich of extremely rich applies. People do not just loose money in the Stock market for no just cause or reason. There are a lot of reasons why people loose money in the stock market. These reasons include:

a. Ignorance

It has been established that 80% of stock investors, invest based on rumors and not on real and true facts. Ignorance is a major reason why many loose money in the capital market

b. Greed

If you are greedy, you can never make much money in the capital market because you cannot beat the market always. Greed is another major factor that make investors loose money by sheaving their get out price because the price of the stock is going up and they hang on to get a higher price than what they planned for.

c. Poverty Mentality

Most investors mistake their poverty mentality as being smart by dodging to pay for knowledge. Most investor in this category prefer to invest in ignorance instead of paying for vital information that will help them.

d. Sentiment

Stocks are not your friend, so do not fall in love with any stock rather, treat them as your slave by using and dumping them when you have achieved what you had in mind while buying them. Buying stocks on sentiment includes buying a stock because you like the stock or to help a friend or relation meet their target. Never buy a stock based on you sentimental feelings.

e. Wrong Information

When you are not informed, you are deformed and half education is a greater problem compared to illiteracy. Attend seminars and

read business magazines and journals to get information and do cross check any information that comes your way before making use of it. Also beware of sponsored analysis so you do not fall prey to them.Common sense and a knowledge of business is more important to the investment process than academic formulas. Ignore day-to-day fluctuations in the market: They’re often meaningless to the bigger picture. Avoid relying on forecasts because most prove to be wrong and are

made to entice you to trade. Remember that you are buying piece of a company and trying to share in its fortunes. Don’t adopt the view that investing is about shuffling stock certificates.

Let time be the natural friend of your portfolio. There is also another alternative: Don’t do anything. More fortunes are made by sitting on good securities for years at a time than by active trading.

Stay within your strengths when evaluating businesses. Judge a business by what it’s worth to its owners and what it costs to maintain it. The business is wonderful if it gives you more and more money every year without

Emotions and habits play a vital role

in the investment process”


putting up anything-or very little. And we have some businesses like that. A business is also wonderful if it takes money, but where the rate at which you reinvest the money is very satisfactory. The worst business of all is the one that grows a lot, where you’re forced to grow just to stay in the game at all and where you’re reinvesting

the capital at a very low rate of return. And sometimes people are in those businesses without knowing it.

Don’t trap yourself into believing a business or product is worth exactly what someone is willing to pay. Someday, you’ll end up paying dearly for a business propped by perception only. Do your homework before purchasing a stock.

I don’t think you can be a really good investor over a broad range without doing a massive amount of reading. You might think about picking out 5 or 10 companies

where you feel quite familiar with their products, but not necessarily so familiar with their financials…. Then get lots of annual reports and all of the articles that have been written on those companies for 5 or 10 years…. Just sort of immerse yourself. And when you get all through, ask yourself, “What do I not know that I need to know”? Some companies are easier to understand and some are not. Result of some companies are by and large consistent and some are not. Try to look for the ones that are easy to understand and have consistent track record.

Never feel compelled to buy or sell just because it seems fashionable. A low price doesn’t guarantee a bargain. The company must offer a combination of good value and improving fundamentals.Look at stock fluctuations as your friend rather than your enemy-profit from the folly rather than participate in it. Three most important words of investing: “margin of safety

Most investors illogically become euphoric when stock prices rise and unhappy when they fall. They show no such confusion in their reaction to food prices: Knowing they are forever going to be buyers of food, they welcome falling and deplore price increases. (It’s the seller of the food who doesn’t like declining prices).

Price fluctuations have only one significant meaning for the true investor. They provide him with an opportunity to buy wisely when prices fall sharply and to sell wisely when they advance a great deal. At other times you will do better if you forget about the stock market and pay attention to the operating results of his companies.

The Author is a Council Member &Past President of ICAB


Mr. M. Farhad Hussain FCA

Acknowledgement

The CPD IRBD 2010‐11 team would like to express its profound gratitude to Professor Rehman Sobhan, Chairman, CPD for his advice and guidance in preparing this report. The team gratefully acknowledges the valuable contribution of Ms Anisatul Fatema Yousuf, Head and Director, Dialogue & Communication Division, CPD and her colleagues at the Division in preparing this report. Contribution of Administration & Accounts Division is also highly appreciated. Support of Mr A H M Ashrafuzzaman, Senior System Analyst and Mr Hamidul Hoque Mondal, Senior Administrative Associate is particularly appreciated. The team would like to appreciate the valuable support it has received in accessing relevant data and information from concerned officials belonging to a number of institutions including Bangladesh Bank, Bangladesh Bureau of Statistics (BBS), Bangladesh Power Development Board (BPDB), Board of Investment (BoI), Department of Agricultural

Extension (DAE), Dhaka Stock Exchange (DSE), Export Promotion Bureau (EPB), Ministry of Food and Disaster Management (MoFDM), Bureau of Manpower, Employment and Training (BMET), National Board of Revenue (NBR), Petrobangla, and Planning Commission. Recent Trends in the Capital Market

The capital market in Bangladesh is increasingly coming under scrutiny as it is detracting from its core purpose i.e. raising equity for industrial activities. It is maintained that recent growth in the capital market is difficult to relate to the growth of real economy, rather it is indicative of inadequate investment opportunities in productive sectors, short‐term speculative trading behavior underpinned by market irregularities and anomalies, weak oversight functions of regulatory bodies and poor policy framework for the financial sector. From this perspective, four key issues may be highlighted in the context of the current state of affairs in the

sector. These are: a) lack of investment opportunities in productive sector; b) poor governance in the capital market; c) market manipulation; and d) anomalies in the financial sector.

Since FY2005‐06, stock market related indicators have registered significant rise66; these trends have continued in FY2010‐11. Between July 2010 and December 2010, DSE General Price Index (DGEN) has registered a growth of 34.7 per cent, market capitalisation has increased by 29.5 per cent and Price Earnings (P/E) ratio has increased to 26.3 (Table 11). Overall market capitalisation at the end of December, 2010 was as high as 51.5 per cent of GDP, which was 38.5 per cent of GDP even in June, 2010. Market related factors such as issuance of the highest number of Initial Public Offerings (IPOs) in FY2009‐1067, entry of large number of small investors in the market with large volume of liquidity and revealed market anomalies in an inefficient market can only explain a part of this growth.

State of the Bangladesh Economyin Fiscal Year 2010-1011


Lack of investment opportunities in the productive sector

a) Lack of investment opportunities in the productive sector and presence of excess liquidity

Growth of investment in the productive sectors experienced a slow down during the recent years mainly because of adverse impact of the global recession, and crisis of energy and power. A large number of export‐oriented and other industries are struggling to secure their return on investment. Private investment during FY2009‐10 was Tk. 1362.8 billion (i.e. 19.7 per cent of GDP), with the lowest level of growth over the last five years (12.7 per cent). As a result, a large volume of investible surplus was available in the banking sector (Tk. 28849 crore at the end of October 2010). Banks had been offering modest rate of interest (7‐10 per cent) on various

savings instruments such as time deposit, wage earner’s bond and NSDs, which in the face of growing inflation meant that in real terms yields on these instruments was significantly low.69 Small savers, who are the main investors in these savings instruments, were further discouraged because of reduction of deposit rates of NSD certificates and interest rate of wage earners’ bonds as well as imposition of tax at source on interest income and cancellation of automatic re‐investment of wage earners’ bonds. Net investment in NSD certificates has declined by 49 per cent during July‐September 2010, while it was as high as 270 per cent for the comparable period of the previous year.70 Consequently small savers were prompted to look for alternate investment opportunities, more specifically in the capital market.

Investment in the capital market, particularly short term trading in

small size securities is found to be profitable compared to that of long term investment in the stock market as well as investment in various savings certificates including the NSD certificates. This is evidenced by empirical data. According to Table 12, investors received relatively higher rates of return for long term investment in the capital market more than 80 per cent companies holding Annual General Meeting (AGM) in recent years have offered a return which was higher than that on savings certificates. Besides, 22 per cent of the companies holding AGM, offered right shares during FY2009‐10. However, in some instances companies could not hold AGMs in due time and did not offer return to their investors which indicate risks associated with long term investment.

Table 11: Major Indicators related to the Stock Market: FY2008 to November, FY2011

Indicators FY08 FY9 FY10 FY11(Jul. Dec.)

% ChangeFY09overFY08

FY10overFY09

FY11 overFY10

(Jul. Dec.)DSE General Index 3000.5 3010.26 6153.68 8290.41 0.33 104.42 89.24No. of listed securi es 378 443 450 445 17.2 1.58 7.23Total number of companies 271 282 243 246 4.06 13.83 4.24Market capitalisa on (billion USD) 14.07 19.02 38.51 49.86 35.18 102.47 86.11Issued capital (million USD) 4149.71 6634.94 8755.02 9220.5 59.89 31.95 22.16Turnover (million USD) 47.97 136.55 273.53 233.77 184.66 100.31 76.74Market P/E 22.8 18.44 24.08 26.29 19.12 30.59 2.50GDP at current price(billion USD) 79.56 89.36 98.75 101.22 12.31 10.51 7.61Market capitalisa on as % of GDP 17.68 21.28 38.5 51.52 20.36 83.22 80.90No. of IPOs 12 14 21 9 16.67 50 28.57% of over subscrip on for IPOs 94 93.6 0.43Growth of total investment 14.31 13.4 12.23

Source: Based on informa on available in the websites of DSE and Ministry of Finance, GoB.


Short‐term return on trading appears to be much higher as is revealed from the estimation of capital gains of DSE 20 and Z category shares (Table 13). Although the return on a number of shares was negative which indicates the related risks

associated with short‐term trading of shares, on average return to blue chips and Z‐category shares was considerably high. This may be true for other categories of shares. Low risk with high return in case of short term trading has acted as a ‘pull factor’ and has

encouraged investors (mostly small investors) to divert funds from other sources to the stock market.

Table 12: Return to Investment in the Capital Market for Over One Year

Type of Benefit FY2007 08 FY2008 09 FY2009 10No of

companiesCumula veshare (%)

No ofcompanies

Cumula veshare (%)

No ofcompanies

Cumula veshare (%)

Right share 0 3 1 25 2250% and Above 23 12 30 14 20 4140% 49% 5 15 12 20 2 4330% 39% 34 34 40 37 9 5120% 29% 36 55 38 54 18 6710% 19% 56 86 80 90 21 871% 9% 14 94 11 95 7 93No dividend 10 100 11 100 7 100Total companies held AGM 178 225 109Total Number of Listedcompanies 271 282 243

Source: CPD Es mates, 2010.

Table 13: Poten al Capital Gain on Different Categories of Shares

Year FY2007 08 FY2008 09 FY2009 10

Category Highest Average Lowest Highest Average Lowest Highest Average Lowest

DSE20 345.98 93.58 21.51 99.39 11.78 31.85 184.32 48.73 25.85

Z

category371.43 100.3 6.82 330.77 78.68 34.87 2198.73 341.1 29.93

Source: CPD es mates, 2010.

Note: Potential capital gain of DSE 20 and shares of Z category is the difference between share prices of the first day and closing day of trading in the fiscal year.


b) Huge inflow of new investors in the stock market eager to participate in the ‘Keynesian Beauty Contest’

In recent years there is an unexpected rise in the number of investors in the stock market. Total number of Beneficiary Owner (BO) account holders till 20 December, 2010 was 3.21 million.71 This number increased by 154 per cent between January to December 2010.72 A large part of these investors have little knowledge about the market and participate in trading as if they are participating in a ‘Keynesian Beauty Contest’.

A number of factors have facilitated the influx of investors to the stock market, such as opening of brokerage houses in various districts (590 branch offices of 238 brokerage houses of DSE are currently being operated in 32 districts)73, organization of ‘share mela’ in different districts and introduction of internet‐based trading operation. Also market‐related information is now easily accessible through electronic and print media as well as internet. According to a number of studies (Tetlock (2007); Tumarkin and Whitelaw

(2001)74), a large number of investors are now participating in short‐term trading. Besides, prediction about future flow of funds to the stock market is encouraging investors to participate more in the short‐term trading.

Poor governance of the capital market

a) Weak Performance of the Regulatory Authority

The capacity of the Securities and Exchange Commission (SEC) appears to be inadequate in ensuring market regulation of the type that is required in view of the current scale and scope of the country’s stock market. Various markets regulating instruments75 made use of by the SEC often appears to lack both ppropriateness and effectiveness from the perspective of providing the required stewardship in the market.

There are several reasons for this observation. First, frequent changes in the rules by the SEC concerning margin loans have led to volatility during the ‘buffer period’. This has also led to

confusion with regard to the method of calculation of the margin. Second, application of lock‐in period in case of sale of placement shares is not being properly maintained; rather in a number of incidence the rule has been relaxed. Third, floating of right shares is increasingly becoming a way of mopping up money from the market.76 A total of Tk. 2,014.5 crore was raised by 16 companies by way of issuance of right shares between July 2010 and second week of December 2010.77 Fourth, lack of expertise in the area of competent examination of audited reports of listed companies, submitted in support of revaluation of assets, is a major operational weakness of the SEC. A number of companies have used the method of revaluation of assets with a view to raising the share prices and thereby to collect additional funds from the market. Fifth, SEC has taken an inordinately long time to implement the guidelines set by the International Organisation of Securities Commissions (ISCO); because of the delay to apply these guidelines share prices of a number of listed companies have experienced unusual volatility.78 Sixth, because of weak monitoring and surveillance system, the SEC is not suitably equipped to take actions against the incidence of possible insider trading in the market. Seventh, although price‐sensitive information is supposed to be made public throughdaily trading operations, often such information is leaked out earlier or rumours are purposefully spread to influence the market behaviour.


b) Weak Institutional Capacity

SEC at present has to work with limited office staff, with lawyers who in many instances lack the required competences; SEC also has to work without chartered accountants.79 With its limited human resource capacity SEC is able to monitor only two brokerage houses in a month. Moreover, SEC has no surveillance software of its own; rather it uses the softwares of DSE and CSE to monitor the market. Proper surveillance of transactions often becomes difficult because SEC has to depend on the support of others.80 SEC is yet to initiate the project titled Improvement of Capital Market which includes a component of support to purchase a high‐powered computer software for monitoring and surveillance operation.81

The nature of relationship maintained by the SEC with the Ministry of Finance82 is not helpful for the market (e.g. face value harmonisation issue).83 The Parliamentary Standing Committee for the Ministry of Finance in certain cases has taken an ‘adversarial position,’ thus creating unwarranted pressure in the operation of the SEC and the capital market.

The operation modalities of the DSE and CSE, on the other hand, are being questioned on many accounts. First, the software used in case of daily trading in DSE is alleged to be ‘faulty’ as all the trading baskets cannot open at a time, and it requires some time to get access to all the baskets after the trading starts at 11 am. To adjust such delays CSE has introduced the so‐called ‘pre‐hour transactions.’ Second, there is a possibility of interruption of daily trading at DSE even if a few branches of brokerage houses do not operate properly due to technical problem. Third, often the directives of the SEC related to trading are found to be difficult to implement because of lack of updated softwares in the DSE.84 While DSE needs to invest more on improvement of its trading softwares, it has come under criticism for its investment in land purchase, for establishing a resort, raising questions about its allocative priorities.85 Fourth, there is a clear conflict of interest between DSE management board and brokerage houses as owners of different brokerage houses are also the members of DSE management board.

Market Manipulation

A number of irregular practices have been reported in various national dailies which indicate market manipulation by a number of bull cartels.86 It is alleged that these bull cartels comprise of only a limited number of people including some members of DSE/CSE, officials of SEC, political leaders, big businessmen, officials of financial institutions, and owners of brokerage houses. Various incidences has been reported in the newspapers as regards manipulating practices such as operation of curb market in case of offering placement shares of IPOs, lifting of lock‐in period in favour of selected companies, speculative trading of ‘Z’ category shares to artificially raise share prices, use of book building system through syndicated practices (see Box 6), fake transactions through brokerage houses, and access to price sensitive information prior to public announcement.87 Because of weak surveillance and monitoring system, SEC is usually unable to prevent such illegal practices.

Introduction of book building system in the recent past has regrettably, in some cases, turned out to be a tool for manipulating market prices. Instead of ensuring competition among big investors during the ‘price discovery’ stage, it is alleged that the system has been used by market syndicates for placement of shares at an artificially high price. This artificial price is maintained for a certain period (usually till the lifting of the lock‐in period, i.e. 15 trading days) following which investors tend to offload their shares at a higher price. There are only three instances where book building system was practiced, of which two companies were directly listed in the market.

On one occasion, those who hold the private placements were able to siphon off a considerable amount of money by selling shares at a high price within the span of one month after the offloading of the shares. As a result, share price of the company fell by 33 per cent within one month and by 50 per cent in next

Box 6: Book Building System - Who is ge ng the benefit of the system?


Anomalies in the Financial System

Certain anomalous provisions of the financial system of the country concerning the capital market are adversely affecting the development of the capital market. First, although commercial banks are not allowed to invest more than 10 per cent of their deposits in the stock market89, a total of 12 commercial banks have been

On one occasion, those who hold the private placements were able to siphon off a considerable amount of money by selling shares at a high price within the span of one month after the offloading of the shares. As a result, share price of the company fell by 33 per cent within one month and by 50 per cent in next two months and did not rise thereafter (Figure 15). Capital flight during the first 15 days of the transaction of the shares of this company is estimated to be at least Tk. 83.7 crore. Similarly, in case of yet another company, only in the first two days of trading flight of capital has been estimated to be to the tune of Tk. 64.8 crore. However, this was not the case for a third company which was not directly listed and indicative price of this share did not experience much volatility. However, the SEC was unable to take appropriate measures to address this type of abnormal market behaviour and those who were involved with such abusive practices were not met with sanctions.88

Recently SEC has revised several aspects of the book building system such as putting a bar against mentioning the expected future earnings in company’s prospectus, making it mandatory for bidders to participate in the road show organised by the issuer company and shortening the period of processing the book‐building for new companies. Implications of the revised system of book building will need to be closely studied and appropriate lessons will need to be drawn.

Figure 15: Daily Share Price of Company X Following Book Building System

Source: Based on Dhaka Stock Exchange (DSE).

identified by the Bangladesh Bank which have violated this rule. Though the central bank has instructed these banks to adjust their investment within the stipulated time of November 2010, things have not changed much. Second, funds disbursed to industrial enterprises in the form of term loan, working capital and over‐draft against workers’ salary is reported to have been diverted to the capital market. The central bank has instructed commercial

banks to adjust such loan portfolios (particularly loans worth more than Tk. 10 million) by 15 February 2011. Third, unsubstantiated gossips and rumour with regard to enforcement of the Insurance Act 2010 and the Insurance Regulatory Authority Act 2010 have fuelled prices of shares of some of the listed insurance companies. Fourth, while merchant banks are supposed to be issue‐managers, at least for one


IPO in a year, a number of these banks were unable to comply with this target.90 This would indicate that the number of merchant banks in operation is large compared to what the market could sustain.91 Where the operation of the merchant banks should have been confined to portfolio management, often these banks are alleged to act as ‘brokerage houses’.

Lack of coordination among various financial markets including debt market, equity market and bond market is considered to be a major weakness for sustainable growth of the capital market. Decisions (or indecisions) of different market regulatory bodies taken at various points of time, have often contributed towards significant volatility in the market. For example, possible diversion of industrial credit to the capital market was anticipated by the Bangladesh Bank in its Monetary Policy Statement for July‐December 2010, but the required surveillance came only at

a much later stage. Further, the margin rule instrument available to the SEC appears to have been applied without proper assessment of the overall money supply and demand situation prevailing in different sectors. Moreover, notwithstanding their mandated responsibilities, most market agents, such as brokerage houses, merchant banks, investment banks, institutional investors, members of DSE, are involved in short term ‘trading’. Overall, lack of proper coordination between two leading regulatory bodies of the financial sector, namely the Bangladesh Bank and SEC is said to have contributed to the current volatile behaviour that is observed in the country’s capital market .

Prospect of smooth landing of the market?

In the backdrop of much apprehension about severe market correction, the capital market has experienced some hiccups in December, 2010.92 In this connection, on 19 December 2010 DSE witnessed the highest

Figure 16: Fall of the DSE Share Price Index between November 2010 and December 2010

Source: Based on DSE.

fall in a day in the history of stock market (6.7 per cent fall of total share pricehe index in a day). It is to be noted that within 15 days (6‐19 December 2010) share price index dipped by 1264 points (‐16.1 per cent) incurring an estimated loss of capital of about Tk.41,984 crore (Figure 16). Whilst a number of actions (and inactions) of the SEC is alleged to have contributed to this situation, mopping up of liquidity by the financial institutions in view of instructions of the Bangladesh Bank is may have played a major role in this downward spiral in the share price index.93 SEC has taken a number of urgent measures, such as re‐fixing margin loan ratio, withdrawal of the requirement of extra deposit of the brokerage houses, bringing back the shares of Grameen Phone and Marico to normal trading floor from spot market, and extending the timeline for reporting of loans of the commercial banks (as per instruction of Bangladesh Bank), which has temporarily smoothened the volatility in market prices.


It is widely accepted that the current behaviour of the capital market is totally at variance with market fundamentals. The critical question is whether the stock market will ultimately experience a crash à la November 1996 or is it going to adjust smoothly? In 1996, within five months the share price index rocketed from 959 (June 1996) to 3,064.9 (November 1996) recording a rise of as high as 219 per cent, but within the next few months it reverted back to the earlier position (957.4 in April, 1997, ‐68.8 per cent) (see Appendix 1). The 1996 is stated to be a ‘generated market’ with a few players (‘bull cartel’) who had inside information about the market. Initially the market was interpreted as ‘buoyant and robust’, but soon went bust causing huge losses to small investors. 94

Optimists would like to stress that 2010 differs significantly from 1996 because of a number of distinctive features.95 However, developments in the ‘hardware’ of the stock market should have been accompanied by effective ‘software’ instruments. An absence of those instruments has tended to encourage investors to invest more in the short‐term trading segment of the market. In the absence of effective ‘software’ instruments market may experience some claming down for a short time, through various reactive initiatives and interventions; however, it will be very difficult to sustain current ‘buoyancy’ in the long term. The ‘boom’ market may go ‘bust’ unless appropriate measures and initiatives are not taken immediately. In the following paragraphs, some of those measures are highlighted.

Policy Suggestions

The analysis in the previous sections reveals that challenges confronted by the stock market involves not merely lack of good stocks but rather it is related to a number of problems associated with bad governance and manipulation in the market itself and anomalies in the financial sector. Following measures can be considered to address the attendant market anomalies and irregularities in the stock market.

Operational Measures

a) Discourage short term trading in the stock market: Imposition of capital gains tax on short term trading which is currently applicable on institutional investors may be extended to private investors to be applicable for short‐term trading.96 Capital gains tax on short term trading by private investors can be a good source for revenue generation. Advanced trading software needs to be installed both at SEC as well as at brokerage houses to estimate capital gain for each transaction and the related revenue to be paid to the NBR.

b) Strengthen surveillance mechanism of the SEC: Current strength of SEC needs to be increased to monitor the various brokerage houses to ensure that transactions in the stock market are made in accordance with the relevant rules. SEC should strengthen its legal advisory support system as well as financial auditing and monitoring capacities by appointing experienced and well‐reputed professionals for these purposes.

c) Appropriate measures for effective operation of the market: SEC may consider a number of measures in order to improve the operational efficiency of the market. This includes extension of lock‐in period for trading of placement shares, particularly for institutional placements, especially under the book‐building system; appropriate scrutiny of audited reports submitted by the listed companies in order to ensure their quality and authenticity.

d) Enforce disciplinary measures against improper/illegal activities: SEC should take disciplinary measures against various kinds of illegal activities such as, punishment for spreading rumours and short buy/sale; halting transaction of shares showing abnormal rise/fall in the prices and penalizing brokerage houses or cancellation of their licenses if settlement of accounts is not carried out in an appropriate manner.

e) Strengthen educational programmes for new investors: SEC should undertake more educational programmes through its newly established Capital Market Institute for new investors to educate them on market fundamentals, market players and their role, anomalies and irregular practices in the market and their impact on share prices, legal measures at the disposal of SEC and law enforcing authorities when rules of game are violated or tampered with.


Management related measures

a) Strengthen the SEC Management: The SEC should be staffed by a group of people who are conversant with the nitti‐gritties of the market, are highly competent, and are of good reputation with wide public exposure. They should be honest and be able to take stern actions against misdeeds, wrong doings and illegal practices. The high profile of the management body of SEBI in India should act as an example for Bangladesh if any such restructuring of the management of the SEC is contemplated.

b) Demutualization: DSE should take appropriate measures for demutualisation in the market through enforcement of appropriate regulations by putting in place restrictions so that owners of brokerage houses cannot become members of DSE management board.

Policy measures

a) Government’s decision to off‐load shares in the market: The progress with regard to offloading of shares of SoEs has been rather scant, although on a number of occasions government had announced (latest in November 2010) offloading of those shares, particularly of eight SoEs. Government should offload those shares without delay.

b) Increase spread of corporate tax rates between listed and non‐listed companies: The existing spread of corporate tax rates between listed and non‐listed companies (10 per

cent) may be further widened (15 per cent) from its existing level (27.5 per cent) by further reducing tax rates to encourage new enlistment in the market.

3.5 OVERSEAS EMPLOYMENT AND REMITTANCES

Both in terms of the number of workers going abroad and the remittance flow, the first half of FY2010‐11 has posed formidable challenges for Bangladesh. Number of migrant workers has decreased by almost half compared to average figure for comparable periods of FY2006‐07 and FY2007‐08, and for the first time growth of remittance has entered into negative terrain. Both of these performance indicators are likely to have adverse impact on Bangladesh’s labour market situation and balance of payment.

Deceleration in Overseas Migration

During the first five months of FY2010‐11 (July to November), overseas migration fell by about (‐) 24 per cent compared to the corresponding period of the previous fiscal year. This disturbing development owes to both demand side developments in importing countries and the

supply side constraints arising from the structural weaknesses which characterise Bangladesh’s migrant workforce.

Changing Economic Scenario in the Post‐Crisis Period

In the backdrop of the post‐crisis macroeconomic scenario, particularly the slowdown in economic activities in the construction sectors, traditional manpower destinations of Bangladesh have hosted lower number of migrant workers in the recent past. Although by now recovery has set in motion in most of these countries, the lagged response of the crisis is reflecting on the number of workers demanded in various sectors of the economy in these host countries. This is corroborated by the fact that overseas migration from Bangladesh to Kingdom of Saudi Arabia (KSA) and the UAE, two of her key manpower export destinations, fell respectively by (‐) 51.7 per cent and (‐) 10.3 per cent during July‐November period of the current fiscal compared to the corresponding period of FY2009‐10 (Figure 17). Similar trend is also found for several other markets where Bangladesh has been a major supplier of migrant labour force in the past.


Increased market share of non‐Middle Eastern countries in recent times is indicative of some market diversification away from the Middle Eastern countries; however, share of these countries is relatively low, also because these tend to demand more skilled manpower. In spite of some improvements in the skill composition of migrant labour force in recent times, the share of ‘less’ and ‘unskilled’ category continues to dominate Bangladesh’s migrant workforce (more than 74 per cent of total overseas migrants from Bangladesh during July‐October, 2010 belonged to the ‘less‐skilled’ category). This has handicapped Bangladesh’s capacity to access the newly emerging opportunities in the post‐crisis global labour market.

Stringent Regulatory Measures in the Host Countries

Bangladesh’s problems have been compounded by the moratorium on issuing of new work permits (Akamas) and their renewal by the Saudi government. Although they

had earlier indicated that it would allow transfer of Akama for Bangladeshi workers, which would enable them to switch to new employers after expiry of the initial job contract, till now no progress has been made on this front. Discussion with various stakeholder groups97 indicate that due to the current policy, Saudi employers are unwilling to issue work visas to Bangladeshi citizens. This has undermined employability, and led to illegal status of workers in the many instances. As a consequence, remittance flow from Saudi Arabia has been adversely affected.

Illegal Stay of Bangladeshi Workers Abroad

As was noted above, because of Akama related complexities, a large number of Bangladeshi workers have lost their legal status in Saudi Arabia. Similar has also been the case in Malaysia where a large number of Bangladeshi migrant workers have lost their legal status. This had two negative impacts: As was found from discussion with returned migrants from Malaysia, many such

workers are discouraged to leave Malaysia and return since they are apprehensive that once they leave Malaysia they will not be able to go back.98 Recent reports suggest that more than 0.4 million Bangladeshis are now residing illegally in Malaysia. Secondly, the emergent situation has induced the Malaysian Government to put embargo on recruitment of workers from Bangladesh.

High Cost of Migration

Cost of overseas migration has traditionally been higher in Bangladesh compared to neighbouring countries. Many of the players involved, including recruiting agents, have connived to exploit the workers. This has led to this higher migration cost in Bangladesh. It has been found that in most cases a worker from Bangladesh has to incur more than twice or thrice the cost borne by a worker from India, Pakistan or Nepal to go overseas. For instance, although the government has fixed payment for workers going to Malaysia at a maximum of 84 thousand taka/workers (as of 2009)

Figure 17: Overseas Migra on from Bangladesh to Major Manpower Impor ng Countries (July – November)

Source: Bureau of Manpower Employment and Training (BMET).


interviews with returned workers reveal that they had to spend on average about Tk. 2 lakh. Besides, discussion with a group of South Africa bound Bangladeshi migrant workers at Dubai Airport revealed that, the workers were contracted to pay Tk. 6 lakhs each if they were successful to finally enter South Africa.99

As is known, three banks are currently offering specialised loan facilities to the migrant workers. A study on migrant workers conducted by Refugee and Migratory Movements Research Unit (RMMRU) indicates that, only 97 aspirant workers had so far received loans from these banks in 2010. The study also pointed out that high interest rate and lack of efforts on the part of the banks’ officials at the field level tends to discourage potential migrant workers from taking loans from the offering banks.

Changing Preferences of Major Labour Importing Countries

The problem from the supply‐side has been compounded by the policies of some of the host countries. KSA and Malaysia are two relevant examples. The GoB has been trying to address the situation through high‐level official visits and discussion at various levels. Tangible results of these efforts are yet to be seen.

Some of the key manpower importing countries appears to have shifted their focus from traditional manpower exporting countries to prospective new ones. According to a number of returned migrants and recruiting agents, Saudi Arabia and Malaysia now prefer workers from Nepal. It may be mentioned here that Nepal alone has sent about

18,019 workers to Saudi Arabia and more than 42,454 to Malaysia during July‐October period of FY2010‐11.100 To compare, Bangladesh’s manpower export to these two countries during the same period was 1,742 and 434 respectively.

There is a need for more persistent diplomatic efforts to change the situation. It may be recalled here that recently the Malaysian government has offered to recruit a sizeable number of Bangladeshi workers on ‘G to G’ basis (i.e. government to government basis). Bangladesh should try to take advantage of this opportunity by ensuring that the rules and regulations stipulated by the host country are strictly adhered to.

Unscrupulous Practices by Recruiting Agents

Besides charging abnormally high processing fees, a number of recruiting agents in Bangladesh are reported to provide false information to aspirant migrant workers regarding job contract, wages, tenure, fringe benefits, etc. This, on many occasions, result in illegal stay of workers in the host countries as they leave the initially contracted job due to disagreement over wages and benefits. Furthermore, some of the returned migrants have also informed that a number of recruiting agents offer job contracts in overseas companies which do not have appropriate vacancies. As a consequence, these migrants get engaged in jobs offered by other companies, a practice which is considered to be illegal by the host countries.

Besides, anecdotal information also suggests that some recruiting agents from a number of other labour exporting countries

(including Nepal) are engaged in sending Bangladeshi workers to the Middle‐East and other destinations, with fake passports, by introducing them as citizens of their own countr . This does not seem unreal in view of the fact that Bangladesh has an abundant supply of workers willing to go overseas and countries such as Nepal are short of workers when compared to the large number of offered job opportunities. Such practice also increases migration cost as the aspirant migrants have to go through indirect routes to reach the destination countries.

There has been a significant deceleration in the growth of remittance inflow to Bangladesh during the first five months of the current fiscal (July to November). Total remittance inflow has declined by (‐) 1.7 per cent over this period compared to the same period of FY2009‐10. To compare, remittance rose by 24.4 per cent in FY2009‐10. A number of factors have contributed to this situation.

Decelerating Manpower Export

As Figure 18 suggests, there is a correlation between the negative growth in remittance inflow and the deceleration in the flow of overseas migration. Remittance inflow from major manpower importing countries except Malaysia has seen a fall over the recent months, to varying degrees. Although the ‘stock effect’ should have, at least in the near‐term, compensated for the (lower) ‘flow effect’, it is disquieting to see that lower levels of migration has tended to be accompanied by lower remittance flow.


However, one needs to be cautious in interpreting the impact of compositional changes in

manpower export markets on remittance inflow to Bangladesh. As Figure 19 shows, despite some

significant changes in the share of different countries as manpower importers from Bangladesh, their share in terms of sources of remittance has remained rather less differentiated in the recent past. This would indicate that while lower overseas migration might may contributed to decreased remittance inflow, the stock effect have somewhat compensated for this, particular in host countries where there is a sizeable number of workers already exist. Nevertheless, if the deceleration in overseas migration continues, its lagged impact on remittance inflow will eventually catch up in the medium term, even in those countries; in that case the growth in remittance flow is likely to go down further.

Figure 18: Market Specific Growth in Overseas Migra on and Remi ances:

FY2009 10 vs FY2010 11 (July – November)

Source: BMET.

Figure 19: Market Composi on for Bangladesh’s Manpower Export and Remi ance Earnings:Share of Major Labour Impor ng Countries

Source: BMET, Bangladesh Bank.

Manpower Export

Remi ance


In view of the significant fall in remittance inflow from Saudi Arabia, it is perhaps worth investigating as to whether the restrictions arising from Akama has induced the Bangladeshi workers to opt for informal channels (hundi) to remit earnings to Bangladesh.

Cost of Remittance

The cost of sending remittances is falling world‐wide in recent times. Bangladeshi workers have also

been able to take advantage of this, thanks also to a number of steps taken by Bangladesh’s policymakers to facilitate the transfer. An analysis of cost of remitting money to Bangladesh from different countries shows that it has seen some decrease during the first quarter of FY2010‐11 compared to the same period of FY2009‐10, for Saudi Arab, Malaysia and United Kingdom; however, there has been some rise for Singapore (Figure 20).

While a worker had to pay an average of USD 4.89 to remit USD 200 from Singapore to Bangladesh during Q1 of FY2009‐10, the transaction fee increased to USD 5.99 during Q1 of FY2010‐11. However, for remitting equivalent amount the processing fee in Saudi Arabia had decreased to USD 8.39 in Q1 of FY2010‐11 from USD 8.7 in Q1 of FY2009‐10; for UK, the corre-sponding charges were USD 11.43 and USD 13.37 respec-tively. Available information suggests that the processing fee for transfer of remittance in Malaysia

Way Forward

• While announcing the National Budget for FY2010‐11, the government had set a target of sending 5.77 lakh workers abroad in the current fiscal. In view of the record so far (first five months), to achieve this target, an average of more than 60 thousand workers will need to go abroad for work each month over the next seven months. However, given the current trend, attainment of this target appears to be highly unlikely. Since the number of migrant workers constitute a significant proportion of the annual incremental labour force of the country, such deceleration in overseas migration from Bangladesh will create additional pressure on the already challenged domestic labour market. CPD survey indicates that there is a common understanding among the relevant stakeholders to the effect that if the current deceleration in manpower exports from Bangladesh is to be reversed, the key strategy ought to be the revitalisation of the job markets in the Middle East. The government has been taking a number of initiatives to address the attendant situation, but till now the results have not been very encouraging. A proactive and aggressive diplomacy will need to be pursued in two areas if the present is to be addressed: resolving the Akama problem and ensuring the continuation of new recruits from Bangladesh.

Figure 20: Cost of Sending Money to Bangladesh from Selected Countries

Source: World Bank.

decreased from USD 10.91 to USD 9.36 between Q3 of FY2009‐10 and Q1 of FY2010‐11. Indeed, total remittance from Malaysia has increased from USD 158 million in Q3 of FY209‐10 to USD 168 million in Q1 of FY2010‐11. However, notwith-standing that the cost of remit-tance had declined for Saudi Arabia and UK, remittance from these two countries declined by (‐ ) 2.4 per cent and (‐) 3.0 per cent respectively during the compa-rable periods.


• Government should continue the dialogue with major labour‐importing countries, particularly in the Middle East, to allow change of jobs by Bangladeshi migrant workers (without transfer fee). A recent study projects that about 500,000 people, in different workmanship categories, will be needed in Saudi Arabia for the ongoing construction of new cities.101 The awarding of Qatar, to host the Football World Cup 2022 is also likely to create hundreds of thousands of jobs in the construction sector. Negotiations should be initiated so that Bangladesh is able to take advantage of these emerging opportunities.

• Efforts should now be strengthened so that Bangladesh is able to cater to the emerging needs in new markets for migrant workers in the developed world, particularly in caring services, nursing, medical technicians, etc. Besides, countries such as Qatar and the UAE are likely demand more workers in the professional and highly‐skilled categories for the service‐and‐knowledge based economy that they are trying to build.102 To access such opportunities, a time‐bound plan should be put in place so that workers willing to travel abroad have the opportunity to undergo skill upgradation training.

• Available reports suggest that demand for migrant workers is set to go up also in South Korea and in Libya. Unfortunately though, only 1,409 people went to South Korea during the first five months of FY2010‐11 (however, this number was more than double the number

that went to Malaysia during the same period) and none to Libya (whereas more than 12 thousand people went to the country during the last six months of FY2009‐10). Efforts should be made to exploit the opportunities in the Libyan market. In recent times, people from Bangladesh have started to go to a number of African countries including Angola, Algeria, Nigeria, Botswana, and South Africa. In view of the ongoing deceleration in manpower export to the traditional markets, policy emphasis should be put to facilitate increased migration to these new and emerging markets.

• World Bank (2010)103 estimates indicate that low‐income countries will attain an average of 8.2 per cent growth in remittance in 2010 and the forecasts are that in 2011 and in 2012 the growth rates could reach 8.7 per cent and 9.0 per cent respectively. Bangladesh’s current growth rate of remittance is way below the levels suggested by these optimistic projections. There is thus an apprehension that Bangladesh is not being able to take advantage of the emerging global opportunities. If Bangladesh is to match the expected performance of the low income countries and attain growth rate of about 8‐9

per cent by the end of FY2010‐11, it will have to maintain a monthly average growth rate of 24 per cent during the remaining period of FY2010‐11. Indeed, Bangladesh should carefully study the policies pursued by other countries in this regard and draw the necessary lessons.

• Strict monitoring and implementation of processing and visa fees which is fixed by the government is urgently required. Because of excessively high expenditure that a Bangladeshi worker has to incur, length of stay abroad, level of wages, timely payment of wages, and opportunity for working overtime are critically important for the workers. Rationalisation of cost of migration and ensuring compliance of the same by the recruiting agents must be given high priority on the government’s agenda. Work of the recruiting agencies should be monitored on a regular basis. If agencies are found to be involved in malpractice such as failure to provide appropriate and truthful information to aspirant workers, these should be strictly dealt with and those responsible should be legally obliged to pay the due compensation to the migrant workers.


• Malaysia has recently expressed its intention to import manpower from Bangladesh only through the government channels. The objectives of such a proposal are to reduce migration cost and to ensure some discipline to the process. According to available information, the Government of Bangladesh will need to ensure that migration cost to Malaysia is kept between Tk. 25,000 to Tk. 35,000 and these workers will get work permit for five years. In view of this changing situation, government should play a proactive role to increase the capacity of BMET to send a larger number of migrant workers through legal channel. If required, the BMET should be suitably strengthened towards this. Aspirant workers should be given appropriate information with regard to emigration procedure, laws, language and culture of the destination countries.

• Regrettably, in recent times Bangladesh is losing some of its

manpower market to Nepal and a number of other countries. GoB should look into the matter, identify reasons and take measures to address the situation. The allegations of recruitments of Bangladeshi workers by recruiting agencies of other countries should also be properly investigated.

4. SHORT‐TERM OUTLOOK AND CONCLUDING OBSERVATIONS

The crucial importance of how the Bangladesh economy performs in FY2010‐11 ought to be judged inter alia, from the following two perspectives. First, globalising economies such as Bangladesh will have to be able to capitalise on the ongoing turnaround in global economy. Second, FY2010‐11 being the first year of the Sixth Five‐Year Plan (2011‐2015), a good kick‐off in the first year will help to materialise the medium term objectives of the Plan.

Growth for Structural Change

For sustainable inclusive development, Bangladesh economy needs to experience a structural change based on promotion of productive sectors. Given the resource endowment of the country, it is maintained that an employment‐ intensive, but highly productive manufacturing sector has to spearhead such a structural change. In view of the above, growth experience of Bangladesh in past three decades reveals two broad phases.

(i) GDP growth during 1980s and 1990s had originated mainly in rapid growth of the manufacturing industries (Figure 21).

(ii) In 2000s, service sector provided a substantial base to augment additional national income, while manufacturing and crop sector held their positions.

Figure 21: Incremental Share of GDP by Broad Sectors (%)

Source: Es mated from MoF (2010).


These relative developments among the GDP components indicate elements of structural change within the Bangladesh economy. In this process, while agriculture sector has ceded its relative share, service sector – not manufacturing sector – has largely picked up the space. This has happened notwithstanding acceleration of the GDP growth rate observed in the recent past. Thus, the Outline Perspective Plan of Bangladesh 2010‐2021: Making

Required sectoral contributions for attaining growth target

Given the slowdown in the incremental share of the manufacturing sector in the recent

2021 A Reality has rightly emphasised that the contribution of manufacturing sector in GDP has to be enhanced to 26.0 per cent and 30.0 per cent by FY2014‐15 and FY2020‐21 respectively (Table 14) from the existing level of 17.3 per cent (FY2009 -10). Admittedly, attaining these challenging targets will require considerable acceleration in the manufacturing production.

Table 14: Sectoral Share of GDP (in Per cent)

Sectors FY10 FY15(Target)

FY21(Target)

Agriculture 19.5 16.0 15.0

Industry 28.9 35.0 40.0

Manufacturing 17.3 26.0 30.0

Service (including Customs Duty) 51.6 49.0 45.0

Source: BBS (2010) and Planning Commission (2010).

enhanced growth performance, attaining the GDP growth target in FY2010‐11 will depend, at the margin, on added contribution from this sector. Indeed, in view of current structure of GDP, economic growth beyond 5 per cent is mostly determined by

Table 15: Sectoral Contribu on to GDP Growth (%)

Sector

Contribu on to Growth (%)

FY06 FY07 FY08 FY09 FY10Required in FY11

(CPD Projec on)

Agriculture Sector 16.7 15.6 11.3 14.0 15.5 11.9

Crops 9.1 7.8 4.8 8.8 10.3 9.0

Industry 39.4 35.9 30.6 31.6 29.3 37.3

Manufacturing 25.8 25.0 19.4 19.3 17.2 25.4

Service Sector 45.5 51.6 50.0 52.6 53.4 49.3

Total 100 100 100 100 100 100

Source: Es mated from MoF (2010) and CPD projec on.

manufacturing sector’s level of output.

GDP growth target for FY2010‐11 has been set at 6.7 per cent. The last time a ‘more than six and half per cent’ growth was achieved was in FY2005‐06 when manufacturing sector contributed more than 25.8 per cent of the aggregate growth (Table 15). An analogous performance will need to be registered from the manufacturing sector in FY2010‐11 (about 40 per cent). The growth contribution from agriculture sector also has to be as good as in the last year (FY2009‐10) (about 10 per cent). Historically, steady performance by the services sector (about 50 per cent) has been underwritten by moderate achievements in the other sectors. About 49.3 per cent incremental contribution in GDP needs to be registered by the service sector in FY2010‐11.


Growth Outlook for FY2010‐11

At the halfway mark of FY2010‐11, there are several indications that the economy has gained some momentum, particularly due to the pick in external demand. Enhanced export receipts during the early months of FY2010‐11 also speak about the upbeat manufacturing growth. Greater investment demand is reflected in strong industrial credit flow leading to growing imports demand for capital machinery and other production inputs. The outcome of crop sector is also expected to match the recent past performance. The productions of Aus and Aman have been satisfactory, while optimistic outcome is being forecasted for the Boro yield by several quarters. The performance of service sector generally has been very steady in nature and should be consistent with the energetic performance of the real sectors. Thus, in the final analysis, broad‐based manufacturing growth will define the final growth outcome in FY2010‐11.

However there are a couple of disquieting factors which may subdue the GDP growth figure for the current fiscal year. The dismal performance of small manufacturing industries could inhibit the potential expansion of manufacturing output.104 Further, considering the employment linkages of small scale manufacturing industries, low performance of the sector would have an adverse impact on labour market. Moreover, sluggish implementation of public investment programme is not only failing to provide the much needed infrastructure services, but this is also holding back private

investment prospects. Furthermore, the emerging power supply situation may not be adequate to accommodate the potential expansion of agriculture and manufacturing sectors in the coming summer season. Slow visible progress in the energy and power sector is becoming a binding constraint for the growth and competitiveness of the processing activities as well as for further development of business supportive services.105 In addition, the unhealthy trend in domestic capital market is also diverting funds and attention from the development of the real sectors. Given the current context, it will be challenging to attain the GDP growth target at the end of the fiscal year if the manufacturing sector does not experience a broad‐based boost, promoting structural change.

Macroeconomic management in view of the growth target

The review of key economic variables suggests that macroeconomic stability in FY2010‐11 is coming under some strains on a number of fronts. These emerging strains may have implications for attaining the GDP growth objective. The size of the budget deficit at the end of the fiscal year will remain within the programmed target, but there is a need to pay specific attention in ensuring balance among the different sources of deficit financing. Rationalisation of prices of public utilities will be necessary to reduce fiscal burden. Rising food inflation may generate an overall cost push, although there is no indication of any foodgrain shortage in the country. There is also a growing concern over the balance of payment situation due to weak remittance inflow and

growing trade deficit. In this context, stability of exchange rate will be of importance in maintaining macroeconomic stability.

In order to address the issue of rising commodity prices (including fuel and food), volatile capital market, slow recovery of investment demand and the pressure on balance of payment, appropriate fiscal and monetary policy support for facilitating the growth process will be required. Indeed, in this case fiscal policy has to take the lead with monetary policy taking an accommodative stance commensurate with the emergent needs. It is pertinent to mention that delivery of the envisaged investment plan for achieving the growth target warrants moderately expansionary monetary policy. In view of the current inflationary trend, it is often suggested that, it is time that the monetary authority slows down the credit growth to protect macro‐economic stability. However, given the nature of inflation in Bangladesh, reigning in domestic credit growth in the current context will be not only pre‐mature, but may also prove to be counter‐productive. In a situation of a disincentive to the supply‐side, inflation may soar further as one is aware of the limits of the demand‐side inflation

“

management which often readjusts the economy at a low level equilibrium.

There is a growing need to backstop the balance of payment in the coming months. However, the current reserve situation does not warrant any panic in this regard. The current BoP situation is yet to generate an adequate rationale for seeking financially expensive and policy conditional loans from foreign sources. It is not clear under what arrangements current negotiation with the IMF is being held. It is important that the government is able to maintain its growth‐supportive policy space including fiscal expansion and enhanced subsidies to critical sectors. If the conditionalities of the said loan is at variance with the declared development policy framework of the government such inconsistencies could undermine domestic ownership

over the development agenda. Indeed, a public disclosure of the soon‐to‐be‐finalised IMF programme may enable us to have an informed discussion in this regard.

CPD maintains that given the present state of the economy policymakers should not get overly preoccupied with concerns about stability; rather all possible policy measures should be geared towards a broad‐based, inclusive and accelerated growth.

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Mortaza, M. G. (2006). Sources of Inflation in Bangladesh: Recent Macroeconomic Experience. Working Paper Series: WP 0704, Policy Analysis Unit (PAU), Bangladesh Bank.Osmani, S.R. (2007). Interpreting Recent Inflationary Trends in Bangladesh and Policy Options.

Presented at a dialogue, Centre for Policy Dialogue (CPD), September 2007.

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Rahman, M., Bhattacharya, D., Shadat, W.B. and Deb, U. 2008. Recent Inflation in Bangladesh: Trends, Determinants and Impact on poverty. Dhaka: Centre for Policy Dialogue (CPD).

Reserve Bank of India. http://www.rbi.org.in/

Schwert, G. W. Anomalies and Market Efficiency. Chapter 15 in Handbook of the Economics of Finance, eds. George Constantinides, Milton Harris, and Rene M. Stulz, North‐Holland (2003) 937‐972.

State Bank of Pakistan. http://www.sbp.org.pk/

Tetlock, Paul C., Giving Content to Investor Sentiment: The Role of Media in the Stock Market. Journal of Finance, Forthcoming. Available at SSRN: ttp://ssrn.com/abstract=685145 or doi:10.2139/ssrn.685145.

Thailand Rice Exporters Association for Bangkok.The Bangladesh Stockmarket: Slaughter of the Innocents (1996). The Economist. December. pp 90-91.

Tumarkin, R. & Whitelaw, R. News or noise? Internet postings and stock prices. Financial Analysts Journal; May/Jun 2001; 57, 3; ABI/INFORM Global (pg. 41).

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Extracts from a paper publishedwith permission of CPD

Abstract

Capital market is a risk exposed market and at the same time it is also a very attractive field of investment. But lack of prudence of investors in this market sometimes led massive catastrophic effect on the whole economy of any country. Country like Bangladesh is yet to establish a long stable capital market due to lack of some infrastructure and intellectual resources. Capital Market risk arises from various factors. Among the factors, some are fundamental and some are incidental. Both too much bearish and bullish market is not expected in the economy. Before going to invest in capital market and to source capital form capital market, one should have a minimum knowledge about capital market. And regulators, institutions should act proactively in playing their due role.

Below are some basics to know about capital market

On understanding the following,

one may easily get the primary concept of the capital market and only then can go to invest in the capital market.

What is the capital Market

In my own perception, Capital market is a place where investors and entrepreneurs have come to benefit by exchanging their respective resources. Here money may be defined as the resource of investor and business idea and intellectuality may be defined as the resource of entrepreneur.

Investors come with their money to invest in a potential, sustainable and well managed business and Entrepreneurs come to invite prospective and intended investors to join them providing necessary fund to launch or run the business that they intend to do.

Capital market also allows subsequent trading of issued shares (which are issued through financing).

Types of Capital Market

The capital markets consist of primary markets and secondary markets.

Primary Market

Newly formed (issued) securities are bought or sold in primary markets.

For example, IPO (Initial Public Offering shares), Private Placement and Promoters’ shares.The transactions in primary market exist between investors and public.

Secondary Market

Secondary market allows investors to sell securities that they hold or to buy existing securities. For example: buying 100 shares of a company through stock broker from another party who are not direct investor/promoters in share issuing company.

The transactions in secondary market exist between investors.


Fundamentals to SafeguardInvestment in the Capital Market

Biplob Kanti Banik ACA


Where is the capital market situated?

Like traditional marketplace, capital market is not a land area where products are sold by weighing or counting, rather capital market consists of some institutions, regulators and authority under law of the respective country.

Institutions, regulators and authorities are the infrastructure of the capital market.

What are the products of capital market?

Capital seekers (Entrepreneurs and Business holders) come to the market with different types of instrument to sell for raising their shortage fund. Such instruments may be regarded as the products of capital market. These are :

-Share (the small part of capital)

-Bond (Convertible and Non-convertible)

-Debenture and other similar instruments

Who could be capital market regulators and why?

Nothing could be conducted without proper guidelines, rules and regulations whether the business is intended to make appreciation of money or to make welfare of the community. Likewise capital market needs to be regulated, controlled and ruled for the welfare of investors, entrepreneurs and other related parties. Government should be the firsthand regulator of the capital market with independent body.

What happens if capital market is not regulated properly?

A shattered, fragile and sick capital market is burden for economy and barrier to growth of trade and commerce and overall development of the country.

Non-existence of sound and sustainable capital market will create dearth of sourcing and investing of capital which ultimately will create unemployment and make a slowdown of GDP growth.

What is the difference between money market and capital market?

Basically the difference between the capital markets and money markets is that capital markets are for long term investments, companies are selling stocks and bonds in order to borrow money from their investors to improve their company or to purchase assets. Whereas money markets are more of a short term borrowing or lending market

where banks borrow and lend between each other, as well as finance companies and everything that is borrowed is usually paid back within certain period. Another difference between the two markets is what is being used to do the borrowing or lending. In the capital markets the most common thing used is stocks and bonds, whereas with the money markets the most common things used are commercial paper and certificates of deposits.

Following are some fundamental risks factors of capital market

The capital market risk usually defines the risk involved in the investments.

There are two types of capital market –the stock market and the bond market; we may discuss stock market risks.

Factors associated with capital market risks.

Characteristics of Investor

There are some investors who


come in stock market to make profit overnight without any simple understanding of the business fundamentals .They think that this market is only for making profit by buying and selling shares after two or three days .

Though they call themselves investors they do not behave like investors. They behave like vendors.

There is no formal authority to educate investors of capital market in our country.

As we see when share prices significantly fall, investors rally on the street, damage public property and chant slogans against regulatory bodies and government.

But one should ask that when

business fails; do real promoters, shareholders or directors come to street to express their anger? Rather they review their activities, decisions and analyze market situation and take decision as to whether they will continue their business or close down.

Instead of reviewing their investment decisions, why investors in capital market (in secondary market) come to the street? Is it not the failure of our regulatory bodies, intermediaries of stock market that they could not educate the investors and direct the market in right track in which investors can trust? Therefore it is capital market institutions’ onus to educate

investors and make them understand about capital market risk factors.

The more investors are prudent, the more risk to be mitigated Psychological factors

Research has shown that there are certain psychological factors that shape the stock market prices. Sometimes people tend to see patterns and make 'noise' although no such patterns may exist. Individuals are also victims of group thinking.

Lack of corporate governance in publicly traded company.

Most of the listed companies have no corporate governance practices in conducting their businesses. Regulatory bodies

only issue some compliance requirement in the name of ensuring corporate governance. And without some financial institutions, it is rarely found that companies are complying with such requirement.

Existing Companies Act, Bank Company Act and Securities and Exchange Commission Act and Rules are not updated with modern practice of business rules and regulation for which business houses can deal their business as they wish.

Inadequate compliance and governance in the listed companies and weak monitoring by the regulatory bodies expose capital market to risks.

Failure to protect from speculation

Sometimes the market behaves illogically to any economic news. The stock market prices can be diverted in any direction in response to press releases, rumors and mass panic. The stock market prices are also subject to speculation. So, to protect market from any buzz, our regulatory bodies and intermediaries must act proactively so that investors are saved from any kind of wrong doing regarding their investment.

Understanding of Financial Information/Analysis

Any investment decision requires rigorous financial analysis. In our capital market, most of the investors do not calculate their return based on company’s

dividend payout ratio and earnings per share (EPS). Rather they say ‘buy this share and it will go up by Taka 100’ or say ‘it will go up’. They only consider gain over trading within 3 or 4 days. But how could it be possible? They don’t examine. It seems to be ridiculous! For example, If an investor bought a share of a company at Taka 500.00 from the secondary market having face value of Taka 100 and net assets value of Taka 300.00 and the investee company is paying dividend at 20% p.a. what will be the return on investment of the investor on that particular share ?

In this case, return on investment (20/500)*100=4% (it is assumed

“Any investment decision requires rigorous financial

analysis. In our capital market, most of the investors do

not calculate their return based on company’s dividend

payout ratio and earnings per share (EPS)”


that the investor holds his share to the record date of dividend entitlement).

But some investors do not know what is dividend; some think they will get dividend on Taka 500 i.e. Taka 100 and some really know their dividend would be Taka 20.

If investing Taka 500 we get Taka 20 annually from the capital market why should we not go to money market where return on investment would be around 10% to12 % and there will be no risk factors of losing capital and income?

The purpose of business is not only making profit but also maximization of wealth by creating net assets value year after year. Investing in the capital market, investors may get chance of making profit and maximization of his wealth value which is not possible in money market.

But should we buy wealth of Taka 300 for Taka 500?. And if we buy, would we be able to get pay back of our investment within 3 or 4 days or even in one year ? If it is not possible by analyzing the growth trend of investee company then question may come why should we buy share with taka 500?

In this case, either we should wait till the value of investment has grown above Taka 500 or we should find another investment opportunity.

So if an investor wants to have a decent return on his investment (expecting dividend) for short term and to maximize the value of his equity then capital market is the perfect place for such investor.

So before coming into capital market, investors’ decisions

should be taken for long term with a view to maximize the value of their wealth and not for making profit overnight. Investor in the capital market should also consider the following risks

The market risk defines the overall risk involved in the capital market investments. The stock market rises and falls depending on a number of issues. The collective view of the investors to invest in a particular stock or bond plays a significant role in the stock market rise and fall. Even if the company is going through a bad phase, the stock price may go up due to a rising stock market. While conversely, the stock price may fall because the market is not steady even if the investee company is doing well. Hence, these are the market risks that the stocks investors generally face.

The industry risk affects all the companies of a certain industry. Hence the stocks within an industry fall under the same industry risk.

The regulatory risk may affect the investors if the investee company comes under the obligation of government implemented new regulations and laws.

The business risk may affect the investors if the company goes through some convulsion depending on management, strategies, market share and labor force.

Systematic Risks

The risk inherent to the entire market or entire market segment. Also known as "un-diversifiable risk" or "market risk

Investopedia explains Systematic Risk

Interest rates, recession and wars all represent sources of systematic risk because they affect the entire market and cannot be avoided through diversification. Whereas this type of risk affects a broad range of securities, unsystematic risk affects a very specific group of securities or an ndividual security. Systematic risk can be mitigated only by being hedged.

Even a portfolio of well-diversified assets cannot escape all risks.

Conclusion

It is capital market intermediaries who have to take firsthand responsibility for evolving our capital market. As capital market is one of the important contributors to growth of our GDP, this market should be a place of profitability, sustainability, viability and confidence and trust for investors. Investors’ maturity, reaction and prudence are also vital to have sound capital market.

If we consider the above factors of capital market risks before taking investment decision, a chunk amount of risk can be mitigated.

We should bear in mind that this is not the place to rush to make money overnight rather it is the place where slow and steady wins the race.

The Author is a Member of ICAB &Manager (Account & Finance)M. M. Ispaahani Ltd., Chittagong

Volatility in the Bangladesh Stock market: Regulators step in to bring back investors’ confidence

The country’s premier bourse Dhaka Stock Exchange (DSE) began the first trading day of 2011 on January 2, 2011 against the backdrop of a record single-day fall in share prices and a persistent liquidity shortage. Although the general index of DSE (DGEN) had soared by 82% in 2010, the first week of the New Year was marked by volatility and violent protests by investors. DGEN rose by 14.18 points on January 2 but, the index has plunged by 569 points over the next four trading days and a whopping 213 points on January 6. The second week of the year gave even a bigger shock to the investors when DSE suffered the steepest ever single-day fall in the bourse's history on January 9, 2011. DGEN plunged by 600 points, and all indices fell nearly 8% amid panic-sale. Securities and Exchange Commission (SEC) and DSE authorities had to suspend trading at 11.50 a.m.

when DGEN shed 660 points or 9.25% between 11 am and 11.50 am.

Dhaka stocks bounced back on January 11, 2011 when DGEN rose more than 15% - the highest one-day spike ever - rebounding a day after a record plunge sparked violent protests nationwide and prompted a flurry of market-boosters from the authorities. DGEN gained 1,012.65 points to close at 7,512. 243 issues, out of 248 securities, advanced massively because of the investors buying frenzy when 195 issues hit the upper band of their respective circuit breakers, forcing automatic freeze on their transaction. And there were no sellers for most of the stocks.

Dhaka stocks opened the third week on January 16, 2011, with a positive note, but soon nose-dived amid volatility, after record plunge and rebound in the previous week. Out of the total of 247 issues traded on the DSE, 215 declined and 32 advanced. SEC suspended trading of both the bourses again on January 18, 2011 for the second time within eight days due to free fall of share prices.

DSE had lost 600 points in five minutes of trading on January 20, 2011. Thousands of aggrieved investors in Dhaka and elsewhere in the country took to the street to protest the collapse of the stock market and fought pitched battles with police as most of the investors had lost more than 50% of their capital in the collapse. DGEN lost a massive 1249.54 points, or 16.49%, the highest ever in a week, as panic-stricken investors went for heavy selling, in most cases offloading their entire stocks, following liquidity crisis in the capital market.

The Securities and Exchange Commission (SEC)—the capital market regulator—suspended trading for January 23-24, 2011, as per the directive of the government, while finance minister Muhith held a series of meetings with stakeholders on January 23 to stem the massive slides in share prices in the previous weeks. The government’s intervention in the capital market in the last week of the month kept the Dhaka stocks afloat as the premier burse’s general index showed an upward trend ending two weeks of


Capital Market Review


massive slides. On January 25, 2011, DGEN soared up by 494.73 points, or 7.82%. But the day’s turnover hit two years’ low at BDT 2.06 bn as there were very few sellers in the market. DGEN advanced by 1,059.57 points or 16.75%, to close the week at 7,385.91 points, as share prices in all three trading sessions increased following suspension of trading for two days on January 23-24, 2011. Out of total 262 issues traded on the week, prices of 253 advanced and 5 declined. The average daily turnover in the week, however, was 5.88% less than the previous week. The volume of trading and daily turnover was low in three trading days as investors, who were in heavy losses, did not want to sell their shares hoping that the market would regain further.

Dhaka and Chittagong stocks continued with the gaining streak for the fourth day on January 30, 2011 as investors, boosted by increased liquidity supply, went into buying spree. DGEN advanced by 186.69 points, or 2.52%, to close at 7,572.61 points on the day, when prices of most of the shares increased further. Of the total 261 issues traded on DSE on this day, 225 advanced, 33 declined and three remained unchanged. The selective price index of Chittagong Stock Exchange gained by 333.63 points, or 2.45%, to close the day at 13,896.43 points. DGEN gained 1,246.24 points in four trading sessions since January 25 after the government took 14 decisions to boost investors’ confidence following two weeks of massive collapse in the market. However, Dhaka stocks fell on January 31 as the investors went for selling shares to book profits after a four-day gaining streak. DGEN declined by 88.38 points, or 1.17%, to close at 7,484.22

points on the day. Of the total 258 issues traded on this day, 178 declined, 78 advanced and 2 remained unchanged.

The government on January 25, 2011 formed a three-member committee headed by the Bangladesh Krishi Bank Chairman, Khandkar Ibrahim Khaled, to investigate share market scam. The committee will investigate the problems and irregularities in the share market. It will start its activities on January 27, 2011 and submit a report within three months.

The finance ministry on January 24, 2011 published a bailout package spelling out steps to protect the troubled stock market.

The decisions include:

1. Index breaker will be withdrawn

2. Circuit breaker of any share will be trimmed in consultation with bourses

3. Probe committee will be formed within two weeks to assess recent developments in the market

4. A comprehensive guide line for share placement will be prepared

5. SEC advisory committee will

be restructured, and BB will have representation into the body

6. Share buyback will be allowed after reforming company laws

7. Frequent meetings by SEC and BB to discuss their policies

8. SEC will not intervene in case of margin loans and will prepare a long-term policy

9. More training programmes should be arranged for investors

10. SEC will set PE ratio considering market situation

11. BB will take a flexible approach to financial institutions’ investment to capital market

12. Institutional investors such as banks, financial institutions and merchant banks will reinvest a portion of their profits from stock trading into stock market.

Securities Exchange Commission (SEC) and Bangladesh Bank (BB) took a series of steps to stabilize the market which virtually had no impact on the market.

BB would be lenient to the banks which had provided more funds to their merchant banking wings than the allowable limit (15% of their total capital) because of the


current crisis in the capital market. Earlier BB directed the banks which had invested more than the ceiling to adjust the excess amount by December 31, 2010.

BB decided to withdraw the deadline set for the commercial banks to adjust loan that have been diverted from industrial sector to capital market. The commercial banks would now be able to adjust such loans whenever they feel comfortable. Earlier, BB set January 15, 2011, as the deadline for the banks to recover loans taken by borrowers as industrial credit but were diverted into the share market.

BB has ruled out the impact of increased cash reserve requirement (CRR) on the money market. BB withdrew BDT 20 bn on December 15, 2010 by increasing CRR but injected over BDT 200 bn in last few days as liquidity support to different banks.

SEC directed that investors would be now eligible for margin loan at 1:2 instead of the current 1: 1.5 and lifted restrictions on 14 companies (which were sent to OTC market as they failed to de-materialize paper share within deadline) being traded at the spot market. Netting facilities have also been opened for all non-marginable securities.

SEC relaxed the highest limit of mutual fund's (MF's) investment in the shares of a single company up to March 31, 2011. As per law, an MF is not allowed to invest more than 10% of its total scheme size in shares of a single company and 25% of the size of its all schemes in the shares of a single industry, debenture and other securities.

SEC repealed the BDT 100 mn loan cap it had imposed on a single investor.

SEC allowed a new investor to enjoy margin loan facilities just 15 days after the opening of a beneficiary owner's account, instead of 30 days.

Stock dealers from January 19, 2011, are allowed to purchase shares worth up to BDT 150 mn without any margin to the exchanges. Previously, a stock dealer had to deposit a certain amount of money as margin to the exchanges for its additional trade exposure after BDT 50 mn, including own and clients' portfolios.

SEC on January 19, 2011, postponed the book building method for initial public offering until further order in a bid to stop overvaluation of primary shares of companies using the method to be listed and exodus of money from the market. SEC has introduced circuit breaker on the capital market index which halts the market if the index gains or loses more than 225 points. The move came in a bid to prevent unusual fluctuation in the market but backfired on the first day (January 19, 2011) of its introduction as trading of Dhaka

shares ground to an automatic halt the first 86 minutes.

SEC on January 25, 2011 halved the limit of circuit breaker on individual stock in a bid to tighten the price fluctuation of shares of the company.

SEC decided not to cancel or postpone the initial public offerings of Mobil Jamuna Lubricants Bangladesh and MI Cement Factory that are using the book building method suspended by the government. In consultation with the government, the regulator took the decision on January 25, 2011, as sponsor directors of the companies promised to buy the shares back, if the prices go below offer prices within the first 30 days after listing.

BB, after a high-level meeting on January 23 with the finance minister, directed on 15 banks to transfer their share market profits to their reserve instead of distributing those among shareholders.

This paper is published with thepermisssion from IDLC


Some Quotable Quoteson the Stock Market

“AK Chowdhury FCA, Past President, ICAB & 52 Co-Founder, CSE – It would appear that because of abrupt policy shift by SEC & BB & usual manipulation undertaken by a syndicate of DSE & over agile greed of merchant banks: the share market is losing confidence and hence, the crash”

- AK Chowdhury FCA

“• The first rule is not to lose. The second rule is not to forget the first rule.”

• I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years.

• If past history was all there was to the game, the richest people would be librarians.• Wall Street is the only place that people ride to in a Rolls Royce to get advice from those who take

the subway.

• Only buy something that you'd be perfectly happy to hold if the market shut down for ten years.

• Be fearful when the world is greedy and be greedy when the world is fearful.

• Wide diversification is only required when investors do not understand what they are doing.

• It's almost a mathematical impossibility to imagine that, out of the thousands of things for sale on a given day, the most attractively priced is the one being sold by a knowledgeable seller (company insiders) to a less-knowledgeable buyer (investors)

- Warren Buffett


““The stock market is but a mirror which provides an image of the underlying or fundamental economic situation. Cause and effect run from the economy to the stock market, never the reverse. In 1929 the economy was headed for trouble. Eventually that trouble was violently reflected in Wall Street.”

- John Kenneth Galbraith

“The things that will destroy America are prosperity-at-any- price, peace-at- any-price, safety-first instead of duty-first, the love of soft living, and the get-rich-quick theory of life.”

- Theodore Roosevelt

“October: This is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.”

- Mark Twain

“There’s no denying that a collapse in stock prices today would pose serious macroeconomic challenges for the United States. Consumer spending would slow, and the U.S. economy would become less of a magnet for foreign investors. Economic growth, which in any case has recently been at unsustainable levels, would decline somewhat. History proves, however, that a smart central bank can protect the economy and the financial sector from the nastier side effects of a stock market collapse.”

- Ben Bernanke

“Money is like manure. You have to spread it around or it smells.”

- J. Paul Getty

“Wall Street is one big turf war. By benefiting one person you are disadvantaging another person.“

- Bernard Madoff

“Stock market bubbles don't grow out of thin air. They have a solid basis in reality, but reality as distorted by a misconception.”

- George Sorost


“The Chinese use two brush strokes to write the word 'crisis'. One brush stroke stands for danger; the other for opportunity. In a crisis, be aware of the danger-but recognize the opportunity.”

- John F Kennedy

“Investors have very short memories.”

- Roman Abramovich

“Buy when the cannons are firing, and sell when the trumpets are blowing.”

- Nathan Rothschild

“The time of maximum pessimism is the best time to buy and the time of maximum optimism is the best time to sell. Outperforming the majority of investors requires doing what they are not doing. Buy when pessimism is at its maximum”

- Sir John M. Templeton

“Life is all about mitigation and management of risk and not of its elimination and avoidance”

- Unknown

“At particular times, a great deal of stupid people have a great deal of stupid money...the money of these people - the blind capital - is particularly large and craving. It seeks someone to devour it and there is a plethora; it finds someone and there is speculation; it is devoured and there's panic."

- Walter Bagehot

“Blaming speculators as a response to financial crisis goes back at least to the Greeks. It's almost always the wrong response.”

- Larry Summers

“Global capital markets pose the same kinds of problems that jet planes do. They are faster, more comfortable, and they get you where you are going better. But the crashes are much more spectacular.”

- Larry Summers


“The stock market is filled with individuals who know the price of everything, but the value of nothing.”

- Philip Fisher

“Men think in herds, go mad in herds, but recover their senses one by one.” - Charles Mackay

“A market is the combined behavior of thousands of people responding to information, misinformation and whim.”

- Kenneth Chang

“Wall Street people learn nothing and forget everything.“

- Benjamin Graham

“In this business if you're good, you're right six times out of ten. You're never going to be right nine times out of ten.”

- Peter Lynch

“You can say on one hand the market is crazy but it's not 1999. People have had their medicine from over exuberance. I find it really interesting that those two businesses, Yahoo! and Google, which are just online advertising businesses, are valued at more than the media behemoths in America.”

- James Packer

“Before this century is over, the Dow Jones Industrial Average will probably be over one million versus around 10,000 now. So for the long-term, the outlook is tremendously bullish if you buy stocks blindly to keep for a century.”

- John Templeton

“Spend at least as much time researching a stock as you would choosing a refrigerator.”

- Peter Lynch

“The average man doesn’t wish to be told that it is a bull or a bear market. What he desires is to be told specifically which particular stock to buy or sell. He wants to get something for nothing. He does not wish to work. He doesn’t even wish to have to think.”

- Jesse Livermore


“Today, there are three kinds of people: the haves, the have-nots, and the have-not-paid-for-what- they-haves.”

- Earl Wilson

“Most people try to maximize the number of times they are right, the real question is how much you make when you are right.”

- Bill Miller

“The list of qualities [an investor should have] includes patience, self-reliance, common sense, a tolerance for pain, open-mindedness, detachment, persistence, humility, flexibility, a willingness to do independent research, an equal willingness to admit mistakes, and the ability to ignore general panic.”

- Peter Lynch

“The best investors are like professional socialites. They always know where the next party is going to be held. They arrive early and make sure that they depart well before the end, leaving the mob to swill the last tasteless dregs.”

- The Economist

“Investing is a lot like sailing - you can go anywhere you wish without forecasting the wind. What is essential is to measure the wind properly and often, and align yourself with prevailing conditions.”

- John Hussman

“The first principle of winning is not to lose. Never worry about what we don't make, worry about what we might lose.”

- J. Dennis Delafield

“History of business shows that advances in technology are not reaped by those that make technology but rather those who use it.”

- Ralph Wanger

“Debt is the worst poverty.”

- Thomas Fuller


“Oh, for the good old days when people would stop Christmas shopping when they ran out of money.”

- Unknown

“Food, Water, Shelter, Air, Sleep, Societal inflation has expanded need into greed. Suddenly the basic survival needs also include a cell phone, cable TV, and French manicured fingernails.... We've become the absolute biggest whiners of all human history with the absolute smallest justification for whining.”

- Charlie Diekatze

“The human race has had long experience and a fine tradition in surviving adversity. But we now face a task for which we have little experience, the task of surviving prosperity.”

- Alan Gregg

“When government accepts responsibility for people, then people no longer take responsibility for themselves.”

- George Pataki

“Debt is the slavery of the free” - Publilius Syrus

“Capitalism is license to steal; the government simply regulates who steals and how much.”

- Abbie Hoffman

“Capitalism without failure is like religion without sin.” - Allan Meltzer

“You want to know a sure way to lose money? Buy what’s popular and don’t know what you are investing in.”

- Marty Whitman

Source : Internet

Well, a million people at least, including my mother and my wife. Remember the famous Monty Python sketch where John Cleese is the Vocational Guidance Counsellor and Michael Palin is a Chartered Accountant wishing to spice up his life by becoming a lion tamer. Part of the conversation goes like this:

"Vocational Guidance Counsellor (John Cleese): Well yes, Mr. Anchovy, but in your report here it says that you are an extremely dull person. Our experts describe you as an appallingly dull fellow, unimaginative, timid, lacking in initiative, spineless, easily dominated, no sense of humour, tedious company, and irresponsibly drab and awful. And whereas in most professions these would be considerable drawbacks, in accounting they are a positive boon.

Anchovy (Michael Palin): But don't you see? I'm only as awful as this because accountancy does this to people..."

John Cleese (left) sorting out Michael Palin, a chartered accountant, who wishes to be a lion tamer in this Monty Python sketch.

That sketch was first aired on December 21, 1969 and more than 40 years later, accountants all over the world claim that they still haven’t recovered from it.

Go back in time even further and we have Charles Dickens having a go at us:

"Meek men, hunched over dusty ledgers, perched on high stools, peering beneath green eyeshades.

But Charles Dickens also gave perhaps a fitting definition of good financial management,

which our friends in Wall Street would have done well to heed. In his 1850 novel, David Copperfield, Mr. Micawber observes quite profoundly:

"Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds nought and six, result misery."

Okay, so we have established that Accountants are not your most exciting people, but still, we serve a purpose and a very important one at that. We fulfill the need to keep accurate and reliable financial records and ensure there is good financial management and discipline, for after all, doesn’t


Who says Accountantsare Boring People!

Sohel Kasem, FCA


everything eventually boil down to money? As businesses grow in size and complexity transcending national boundaries, it is necessary to understand the intricacies of balance sheets, profit and loss accounts and cash flows, and in general how financial statements are prepared and presented. The role of the auditor also becomes crucial in acting as an independent overseer of truth and fairness of such financial statements. His attestation is relied upon by investors and stakeholders in making investment decisions. Clearly good accounting systems and financial management require good accountants and their necessity in today’s business world is absolutely vital.

What is Accounting

Accounting is defined by the American Institute of Certified Public Accountants (AICPA) as "the art of recording, classifying,

and summarizing in a significant manner and in terms of money, transactions and events which are, in part at least, of financial character, and interpreting the results thereof.”

Today, accounting is called "the language of business" because it is the vehicle for reporting financial information about a business entity to many different groups of people. Accounting that concentrates on reporting to people inside the business entity is called management accounting and is used to provide information

to employees, managers, owner-managers and auditors. Management accounting is concerned primarily with providing a basis for making management or operating decisions. Accounting that provides information to people outside the business entity is called financial accounting and provides information to present and potential shareholders, creditors such as banks or vendors, financial analysts, economists, and government agencies. Because these users have different needs, the presentation of financial accounts is very structured and subject to many more rules than management accounting. The body of rules that governs financial accounting is referred to as International Accounting Standards (IAS), International Financial Reporting Standards (IFRS) and in the USA, as Generally Accepted Accounting Principles, or GAAP.

History

The earliest records of Accounting date back more than 7,000 years to the Middle East and were found among the ruins of Babylon, Assyria and Sumeria, where people used primitive accounting methods to keep track of goats and herds. The Romans used accounting extensively and there are plenty of references in ancient Islamic and Hindu scriptures. Modern day accounting traces its roots to the 14th century when an Italian monk, Lucas Pacioli,

devised the concept of Double Entry bookkeeping, still the cornerstone of modern day accounting. In this model, he proposed the idea of two sides of any financial transaction – a debit and a credit. Sophisticated and computerized accounting software and all the present day and futuristic models all rely on this very simple principle – for every entry, there must be an equal and opposite entry. Rather like Newton’s Third Law of Motion – for every action there must be an equal and opposite

reaction. See, we are a very scientific discipline.

Double Entry system ultimately facilitated the development of joint stock companies, allowing investors to gain firsthand knowledge of their operations through the use of accounts prepared to provide this information. This development resulted in a split of accounting systems for internal (i.e. management accounting) and external (i.e. financial accounting) purposes, and subsequently also in accounting and disclosure

Fra Lucas Pacioli (c 1445 – 1514), the Father of modern day Accounting

“The earliest records of Accounting date back more

than 7,000 years to the Middle East and were found

among the ruins of Babylon, Assyria and Sumeria,


regulations and a growing need for independent attestation of external accounts by auditors.

Accounting as a Professional Qualification

A professional qualification in accounting opens up many doors to finance, banking, management, audit and assurance, due diligence, tax and advisory services and is definitely a career worth thinking about. Accounting is mainly a post graduate professional qualification, although in recent times the doors have been opened up to A Level students also. There are several types of professional qualifications, the major ones being listed below:

English system

• Chartered Accountancy (CA)• Cost and Management

Accountancy (CIMA)• ACCA

American System

• CPA

Chartered Accountancy (CA)

Chartered Accountancy is an English origin qualification and derives its name and roots from the Royal Charter granted by Queen Victoria of England in 1880 and is still regarded as the most prestigious accountancy qualification in the world. It is followed by the former Commonwealth countries, including Bangladesh and its South Asian neighbours, Australia, Canada, New Zealand, South Africa, Scotland and Ireland. The English Institute, full name – the Institute of Chartered Accountants in England & Wales, now has about 167,000 qualified accountants.

The Chartered Accountancy qualification generally encompasses a 3 year apprenticeship period, referred to as Articles, with a licensed professional accounting firm. In addition to completing this Articleship period, the student also has to pass 2 or 3 sets of Professional exams in order to call

himself a Chartered Accountant. Once they have qualified to become a Chartered Accountant, they can then apply for membership with the respective Institute of Chartered Accountants in their country and are then referred to as either an ACA (Associate Chartered Accountant) or an FCA (Fellow Chartered Accountant), the distinction being only in terms of seniority. ACAs have to complete 5 years of continuous membership and attain a certain number of CPD hours (Continuous Professional Development) after qualification to become an FCA.

The local Institute of Chartered Accountants of Bangladesh has also recently signed an MOU with the English Institute (ICAEW) and changed its syllabus and examination procedures to bring us in line with the ICAEW qualification, thereby granting us access to international recognition for the first time.

See ICAB website for further information: www.icab.org.bd


Prospects for Accountants in the Job Market

If money is the language of business, then no one speaks it better than accountants. The growing importance of trade and industry along with the rapid growth of capital and money markets in an economically developing nation like ours has increased the importance of accountants enormously. Generally, they play a strategic role by providing professional advice, aiming to maximise profitability on behalf of their client or employer. They work in many different settings; including public-practice firms, industry and commerce, as well as in the not-for-profit and public sectors.

In Bangladesh, chartered accountants work as Chief Finance Officers, Financial Controllers, Financial Advisors or Directors (Finance) and watch over the finances in the day to day management of companies.

They are engaged in activities like market research, budget planning, working capital management, inventory control, policy planning, securities consultancy, etc. There are also a large number, approx 200 Bangladeshi chartered accountants, working all over the world including the USA, UK, Canada and Australia in various responsible positions in business and commerce.

Conclusion

To use a time worn cliché, the world is your oyster, figuratively speaking. Professionally qualified accountants are in huge demand nowadays and there is a common complaint that demand is far more than the supply. In addition to careers in businesses, banks, finance and management, there is also a big pool of accountants engaged in audit and assurance, tax and advisory services. In recent times, and particularly in the wake of spectacular financial debacles particularly in the West,

e.g. Enron, there is now a strong demand for forensic accountants. This is our equivalent of a Sherlock Holmes detective plot, whereby an army of accountants sifts through endless paper trails to unravel a maze of financial crimes and felonies.

The financial rewards for a newly qualified accountant are far more than those afforded to a newly qualified doctor, engineer or an IT specialist. Moreover, it offers a job stability rarely found in any other career. So, for young men and ladies, if you haven’t already decided on a career, think again. You could do worse than opt for a career in Accounting – boring or not!

UK USA Canada Australia South Asia

Bangladesh Others Total

Chartered Accountants 167,000 - 75,000 50,000 207,000 1,000 62,000 562,000

CIMAs 80,000 - 50,000 -

80,000 1,000 - 211,000

ACCAs 140,000 - - - - - - 140,000

CPAs - 370,000 - 129,000 - - - 499,000

Total 387,000 370,000 125,000 179,000 287,000 2,000 62,000 1,412,000

Number of Qualified Accountants worldwide (approx. numbers as of July 2010)

The Author is a Council Member &Past President, ICAB &Senior Partner, A Qasem & Co.Chartered Accountants

The concept, Corporate Social Responsibility (CSR) has been gaining importance in recent years among the business community of Bangladesh although it came into common use in early seventy's of the last century when multinational corporations came into scene worldwide. The CSR is the deliberate inclusion of public interests into corporate decision making and the honoring of a triple bottom line: People, Planet, Profit. CSR focused business would proactively promote the public interests by encouraging community growth and development of various social issues like Environmental Improvement, Economic Development as well as Social Development. Among the environmental issues, CSR deals with global warming, geological balance, pure water management, carbon emission, city beautification and waste management, sea water level. CSR deals with Agricultural production and processing, crop diversification, employment

generation, education and training of human resources in the Economic Sector. In the same way CSR takes care of investing for women's right issues, extending donations to HIV/AIDS campaign agencies, welfare activities for disabled, donations for public universities, relief activities after natural disaster and calamities, welfare activities for grassroots children and acid victims etc., under its Social Development programme.

Under Community based development approach the CSR is becoming more widely accepted and in this approach corporations work with local communities to better the social life and other aspects of society. For examples, the Shell Foundation set up a project in Flower Valley of South Africa by setting up an early learning centre to help educate the community's children as well as develop new skills for the adults. Often companies participate in the activities for establishing education facilities for adults and for HIV/AIDS

education programs. Most of these projects are located in Africa as the continent suffers badly from HIV/AIDS diseases. There is another approach of CSR in the form of philanthropy including donations and aid given to local organizations and impoverished communities in the developing countries.

The sense of rendering social services by business houses to the members of the community is a good sign for the society to develop itself in the fields, the society needs. This is in addition to the main objective of the business houses to earn profit and in return to share a portion of it along with the members of the society for the improvement of their social standard and improvement of life style.

In the recent years the Govt. of Bangladesh has been encouraging the Business Community to extend their support to the members of the Society in the form of CSR. As a tool of regulatory guidance in this


Corporate SocialResponsibility (CSR)

A Wahab FCA

“


respect, the Ministry of Finance, Internal Resources Division, Govt. of Bangladesh has recently issued a SRO numbered as 270 AvBb/AvqKi/2010 dated 1st July 2010 with certain directives in respect of the CSR and granting incentives in the form of waiver of tax @ 10% on the amount spent for CSR.

1) Economic field covering the subjects of agricultural production and processing, crop diversification, employment generation, Education and Training for improvement of human resources and the allied matters, such as donations to institutions to set up computer lab and training institute of Information Technology, implementation program of English learning in Non Govt. education institutions having been enlisted for MPO and to boost up the earnings capacity

of the members of the Society, donations to Govt. approved educational institutions engaged in the technical and vocational training to the poor and meritorious students and to develop their earning capacity, donations to the institutions engaged in the development of infrastructure for sports and imparting training thereof in the national level and also donations to such institutions engaged in imparting vocational training to skilled and unskilled labour force for its exports abroad to earn valuable foreign

exchange for the country. 2) Environmental field covering

the issues of global warming, Ecological balance, Pure Water Management, setting up Water Supply Institutions, Carbon Emission, Sea Water level, forestry, City Beautification and Waste Management and other allied subjects such as donations to the institutions engaged in providing hygienic drainage and sewerage services in the hill tracts districts, river erosion and char areas.

3) Social Development field covering the issues like Investing for Women's Rights Issues, extending donations to HIV/AIDS campaign Agencies, Welfare activities for disabled and handicapped members of the Society, donations for public universities, relief Activities after natural calamities and disaster

management activities, welfare activities for grassroot children and acid victims and donations for establishment of old homes and shelter centers for the destitute and other matters such as donations to the institutions engaged in the treatment of cancer, leprosy, cataract surgery etc. and donations to the institutions engaged in the field of family planning and birth control and to those NGO's who distribute the materials of family planning and birth control free of cost, donations to the specialized hospitals for free

treatment of poor patients who suffer from cancer, kidney, liver, thalamasia, eye and cardio diseases etc. and donations to the institutions engaged in the research of subjects connected with liberation war and for the welfare of freedom fighters and to uphold the cause and spirit of the liberation war and for the revival of such feeling.

As per statutory requirement of an organization eligible for the facilities under SRO mentioned earlier, the undertaking shall have to fulfill the following conditions in respect of CSR.

1) That such an undertaking shall have to pay regularly the salary and allowances of its employees including P. F and gratuity and health benefits on the basis of the principle "charity begins at home". In addition, in case of an

industrial undertaking it must have a waste treatment plant as per law.

2) The undertaking shall have to pay regularly the govt. dues like Income Tax, VAT and other taxes and duty. In case of an undertaking taking loan from any bank or financial institution, it must have settled the dues regularly.

3) Such an undertaking shall make payment of grant or donation only to such institutions as are, approved by the Govt. for CSR activities.

The CSR is the deliberate inclusion of public interests

into corporate decision making and the honoring of

a triple bottom line: People, Planet, Profit”


4) Such an undertaking shall comply with the regulations under the labour law of the country and shall discourage the employment of child labour.

5) Such an undertaking approved for CSR facilities shall not charge the related amount spent for the CSR purposes in its Manufacturing, Trading and Profit and Loss Account.

6) The undertaking claiming Tax Holiday shall have to obtain a clearance certificate for the relevant income year from the Directorate of El1vironment.

7) The concerned undertaking claiming the CSR facilities under the Income Tax Law shall have to maintain necessary books and records for CSR activities and shall submit necessary evidence in support of the amount actually spent, to the concerned OCT; and

8) The undertaking rendering the CSR services shall have to obtain an Income Tax Rebate Certificate from the National Board of Revenue on the basis of its work plan for the tax rebate under the CSR scheme in recognition of its approval for CSR.

Because of this incentive granted to the organizations for CSR services there is response in a big way from large number of undertakings which is evidenced by the sign boards with slogans of addressing the different social issues as well as beautification of the roads and establishments at cities and at different locations of the country. But there is still scope of broadening the scope of operations of the concept by attracting more business houses in

the net work of CSR as a part of the total development of the entire nation.

To attain this objective an attempt should be made more seriously in this respect and the organization should first manage its affairs on the basis of the principle "charity begins at home" by providing the welfare services to its own employees in the form of paying salaries, provident fund, and gratuity and health facilities regularly.

As per demand of the business community for a long time, the Govt. has allowed this incentive for CSR services by allowing rebate of tax at 10% of the amount spent for the services so rendered. The business community should take advantage of it but necessary cautions should be taken so that nobody can misuse the facilities offered by the Govt. To ensure its proper use the accounts should be audited regularly. For this purpose social accounting, auditing and reporting by every corporate organization should be ensured as the social accounts, a concept describing the communication of social and environmental effects of a company's economic actions to particular interest groups within society and to society at large, is an important element of CSR.

There are criticisms and concerns related to the CSR. The proponents of the CSR debate on the concerns linked to the CSR. This include CSR's relationship to the fundamental purpose, nature of business and questionable motives for engaging in CSR as are likely to involve in insincerity and hypocrisy. Some critics say that through CSR activities the big companies like British America Tobacco, The petroleum giant B. P. which are well known for its high profile advertising campaign on environment aspects (of its operations) and McDonald to distract the public opinion from ethical questions posed by their core operations. They argue that some corporations engage themselves in CSR activities for enjoying commercial benefit by raising their reputation with public as well as the govt. They suggest that the corporations which exist solely to maximize their profit are unable to deliver services to the society as a whole. The recent incident of oil spills of B. P. in the Mexico gulf is an example of disasters causing damage to the environment which will take a long time to recover. However, the good effects of the CSR program always outweigh its drawbacks. In a developing economy like ours we now need more and more participation and co-operation of the corporate


body in the social development sector of the country than any time before. Through CSR, the said organizations can render better services to the society in the improvement of the programs involved in the economic, environment and social development field of the country. In return, the business community should get some tax benefit as allowed for the activities under the CSR net work duly regulated by the Govt.

In a meeting organized by Management and Resource Development Institute (MRDI) in association with Manusher Jonno Foundation (MJF) with the business community of Chittagong the speakers stressed on the need for developing a culture in the country to encourage business to be more socially responsible. They have appreciated the Govt. move to allow 10% tax rebate on the amount spent for CSR. In another meeting held in Khulna towards middle of December 2010 under the sponsorship of same group it was the opinion of the speakers

and the analyst of the meeting that the country can institutionalize corporate social responsibility (CSR) interventions to deal with malnutrition, education, health, employment and poverty.

In the meeting Rokia Afzal Rahman, former caretaker govt. adviser and the president of Bangladesh Employers' Federation said that CSR is coming out of the purview of the doing social good and is fast becoming a business necessity. She emphasized upon policy support and incentive from the govt. to encourage corporate sector to be more active in CSR. Syed Md. Aminul Karim, member of the NBR, present in the meeting referred to the revised Statutory Regulatory Order (SRO) on CSR and hoped it will facilitate and encourage the business community to come up with more CSR activities. In the course of his deliberation, Mr. Hasibur Rahman, Executive Director of MRDI said CSR is recognized globally as a strong process for the corporate entities to serve community needs. According to

them proper utilization of the CSR fund can be a key factor in eliminating poverty. In this connection some of the learned speakers has sought a working definition of C.S.R in the context of Bangladesh pointing to the necessity to differentiate among CSR, philanthropy and charity. However, these noble services to the society in whatever form it may come are getting focus gradually. It is the expectation of the members of the society that business persons should come forward and widen the periphery of activities under their corporate social responsibility with a view to boosting up education and having pollution free environment and to alleviate poverty in the country for the betterment of the entire nation and it should be treated as a war declared against poverty, illiteracy, Malnutrition and pollution of all kinds.

The Author is a Member of ICAB &Senior Partner, A Wahab & Co.Chartered Accountants

Business Leaders Have always sought to increase efficiency, quality and output. Many theories on how to achieve this become temporarily fashionable before fading into obscurity. But one idea seems to have taken root across the globe and is being adapted for use in an astonishing number of different settings.

Following World War II, Japanese industry was hampered by a tendency to concentrate on manufacturing cheap but inferior copies of Western products. To rectify this, they engaged business experts from the United States whose advice sowed the seeds for the flowering of “Kaizen” and subsequent commercial success.

Kaizen is a Japanese word meaning “improvement” (or change for the better) and is closely associated with the successful expansion of Japanese enterprise. It is a principle that advocates the total involvement of an organization in improving its activities at every level.

This was a move away from the traditional top down form of sometimes repressive management and , instead, encouraged the workforce at each stage of a process to identify and implement improvements to their individual contributions.

The idea was then extended so that instead of engaging in a one-off brainstorm of ideas, staff were encouraged to participate is a continuous process of positive change which enabled the end-product to be consistently at the leading edge of innovation and quality. This basic idea is now more commonly termed “Continuous Improvement” (CI).

Nothing New

Although Kaizen and its offshoots may look like a breakthrough in organizational management, it could be argued that its ideas are simply a development of other systems that have been exploited over many years. In the 18th Century, for example, a Frenchman named Emile Coue devised a personal self-improvement programme from which came the repeated mantra, “Every day in every way, I am getting better and better”. And a saying in the British Army when preparing for action is that “There is always one more thing to do”.

So what has made the Kaizen system of continuous improvement the model for others to follow? It was probably a book, Kaizen – the key to Japan’s Economic Success by Masaaki Lmai, that kick-started the revolution.

It has also produced a rash of similar theories and a new lexicon of terms relating to the process: Lean Thinking; Total Quality Management; Frugal Innovation, and more.

Kaizen Worldwide

As the spread of CI practices has gathered pace throughout both industrial non-profit organizations, it has been accompanied by a growth in training facilities and consultancies. In 1988, the Malcolm Baldridge Award was set up in the US, recognizing Kaizen CI as an internationally credible system. By 1992 the EU had established the European Foundation of Quality Management. Both these institutions provide a yardstick by which CI success can be measured. Meanwhile, many organizations recruit directors of CI and specialist posts can be found from breweries in Canada to medical health centres in Singapore. There are kaizen courses in Russian graduate schools and the International Kaizen Institute, established by Masaaki Lmai in 1986, operates in a large number of countries.


The Flowering of Kaizen

Extract from G4S InternationalIssue 410

On July 2009 the International Accounting Standards Board (IASB) published an International Financial Reporting Standard (IFRS) designed for use by small and medium sized entities (SME).That standard is the International Financial Reporting Standard for Small and Medium–sized Entities (IFRS for SMEs or the standard). Small and medium-sized entities are entities that do not have public accountability, and publish general purpose financial statements for external users. According to IASB’s report SMEs are estimated to represent more than 95% of all companies in the world. The objective of financial statements of a small or medium-sized entity is to provide information about the financial position, performance and cash flows of the entity that is useful for economic decision-making by a broad range of users who are not in a position to demand reports tailored to meet their particular information needs.

The objective of introducing IFRS for SMEs is to ensure that financial

statements provided to external users i.e banks are consistently prepared by all businesses. That does make sense when a bank or other external user is trying to evaluate the financial viability of the company. In Bangladesh IFRS for SMEs is very important because almost more than 70 percent of total bank loan is disbursed to the private companies. Again more than 30 percent of stock market encompasses the share of banking sector. So to ensure the depositors interest and also to ensure the interest of investors in banking sector financial discipline of small and medium sized entities need to be strengthened. For strengthening the financial discipline for SMEs there is no other alternative but to prepare financial statements according to the standard. Now the question is according to local legislation how far the standard is adoptable in Bangladesh. In Bangladesh financial statements of private limited companies i.e the entity that does not have public accountability are prepared complying with the contents of

Companies Act. So it is relevant to compare the contents of the standard and that of the Companies Act. Some important issues in this regard are described below.

As per the standard a complete set of financial statements of an entity shall include

(a) a statement of financial position as at the reporting date.

(b) a separate income statement and a separate statement of comprehensive income.

(c) a statement of changes in equity for the reporting period.

(d) a statement of cash flows for the reporting period.

(e) notes, comprising a summary of significant accounting policies and other explanatory information.


Opportunities and Challenges forAdoption of IFRS for SMEs in Bangladesh

Md. Shahadat Hossain FCA


As per the Companies Act 1994 financial statements includes

(a) Balance sheet (Sec-183)

(b) Profit and Loss Account (Sec-183)

(c) Statement of changes in financial position (Sec-185, Schedule-XI, notes- f)

(d) Notes (Sec-185 (1)

From above it may be seen that comprisal of financial statements according to both the Companies Act and the standard is almost same, only difference is in some nomenclature. It is also mentionable here that as per the Companies Act statement of cash flows is not mandatory but preparation of this will not be violation of the Act.

As regards to accounting policy the standard requires disclosure of all types of policy based on which financial statements have been prepared. These disclosures are also required as per the Companies Act. In this regard another important issue is change of accounting policy. As per the standard the nature of changes in accounting policy, the amount of adjustment needed for such changes in current period and prior period should be disclosed. Similarly as per the Companies Act, if any change in accounting policy takes place, the material effect in the current period or in subsequent periods due to such changes should be disclosed together with the reasons. The effect of the change should, if material be disclosed and quantified.

Regarding recognition and measurement of fixed assets which is the most important item

of private companies the standard include that the entity shall recognize the cost of an item of property, plant and equipment as an asset if, and only if, it is probable that future economic benefits associated with the item will flow to the entity, and the cost of the item can be measured reliably. An entity shall measure an item of property, plant and equipment at initial recognition at its cost and after initial recognition all item should be measured at cost less any accumulated depreciation and any accumulated impairment losses. As per the Companies Act fixed asset should be stated in the original cost and the addition thereto and deductions there from during the year under each head and the total depreciation written off or provided up to the end of the year. So it can be opined that there is no fundamental differences between the Companies Act and the standard as regards to recognition and measurement of fixed assets.

As per the standard an entity shall measure inventories at the lower of cost and estimated selling price less costs to complete and sell. As per the Companies Act value of inventories to be stated in the financial statements are placed at the lower of historical cost and net realizable value. It is also mentionable here that there is no difference between the standard and the Companies Act as regards to recognizing components and calculation of cost of inventories.

Main contradictory issues between IFRS and local laws are measurement of value of financial instruments. Financial instruments mean a contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. In nut shell for a private company

financial instrument include investment, borrowings etc. As per the standard when a financial instrument is measured initially an equity shall measure it at its fair value, which is normally the transaction price and at the end of each reporting period, an entity shall measure all financial instruments at fair value and recognize changes in fair value in profit or loss. As regards to measurement of value of investment i.e financial instrument the instruction of Companies Act is that it should be presented in financial statements showing nature of investments and mode of valuation, for example cost or market value. Aggregate book value of a company’s quoted investments and also the market value thereof shall be shown. This content of the Companies Act reveals that investment may be presented at market value in the financial statements which is completely in line with fair value presentation as per IFRS for SMEs. Intangible asset is an important and exceptional item for the private company. In this regard policy of the standard is that an entity shall recognize an intangible asset as an asset if, and only if:

(a) it is probable that the expected future economic benefits that are attributable to the asset will flow to the entity;

(b) the cost or value of the asset can be measured reliably; and

(c) the asset does not result from expenditure incurred internally on an intangible item.

An entity shall measure an intangible asset initially at cost and subsequently it will measure


at cost less any accumulated amortization and any accumulated impairment losses. As regards intangible assets the policy as mentioned in the Companies Act is that this will be accounted for as miscellaneous expenditure and following items will be included under this heading.

(1) Preliminary Expenses

(2) Expenses including commission or brokers as on underwriting or subscription of share or debentures.

(3) Discount allowed on the issue of shares or debentures

(4) Interest paid out of capital during construction ( also stating the rate of interest)

(5) Development expenditures not adjusted

(6) Other items (Specifying nature)

As regards to amortization of such assets the Companies Act also contains that expenditure under the head miscellaneous expenditure, which has not been capitalized shall be written off over the years on which the benefits of such expenditure is expected to accrue, or on some other suitable basis. From both the contents of the standard and the Companies Act it is clear that there is no such contradictory issues between these two accounting guidelines of intangible assets.

Provision is also another important item for true and fair presentation of financial statements. Guideline as regards to provision in the standard are that an entity shall recognize a provision only when:

(a) the entity has an obligation at the reporting date as a result of a past event;

(b) it is probable (ie more likely than not) that the entity will be required to transfer economic benefits in settlement; and

(c) the amount of the obligation can be estimated reliably.

An entity shall measure a provision at the best estimate of the amount required to settle the obligation at the reporting date. The best estimate is the amount an entity would rationally pay to settle the obligation at the end of the reporting period or to transfer it to a third party at that time. At each reporting date an entity shall review provisions and adjust them to reflect the current best estimate of the amount that would be required to settle the obligation at that reporting date. Any adjustments to the amounts previously recognized shall be recognized in profit or loss unless the provision was originally recognized as part of the cost of an asset. When a provision is measured at the present value of the amount expected to be required to settle the obligation, the unwinding of the discount shall be recognized as finance cost in profit or loss in the period it arises.

As regards to provision the contents of Companies Act is that the profit and loss account shall set out the various items relating to the income and expenditure of the company arranged under most convenient heads and in particular shall disclose the aggregate, if material, of the amounts set aside to provisions made for meeting specific liabilities, contingencies of commitments. As per the Companies Act the expression of “provision” shall mean any amount written of or retained by way of providing for depreciation, renewals or diminutions in value of assets, or retained by way of providing for any known liability of which the amount can not be determined with substantial accuracy. So it is clear from above statement that the accounting procedures of “provision” as mentioned in the Companies Act are completely in line with the standard.

Revenue is an important issue of a private entity. Summarized guideline in respect of measurement of revenue in the standard is that an entity shall measure revenue at the fair value of the consideration received or receivable. The fair value of the consideration received or receivable takes into account the amount of any trade discounts, prompt settlement discounts and


volume rebates allowed by the entity. Revenue will include only the gross inflows of economic benefits received and receivable by the entity on its own account and exclude all amounts collected on behalf of third parties such as sales taxes, goods and services taxes and value added taxes. In an agency relationship, an entity shall include in revenue only the amount of its commission. The amounts collected on behalf of the principal are not revenue of the entity. Provision of the Companies Act as regards to recognition and measurement of revenue for a private entity is as follows

• The turnover, that is the aggregate amount for which sales are affected by the company, commission paid to selling agents.

• In the case of companies rendering or supplying services, the gross income derived from services rendered or supplied.

• In the case of other companies, the gross income derived under different heads

Here we can conclude that there is nothing noteworthy in the contents regarding accounting treatment of revenue in the Companies Act which is contradictory to the the standard.

Proper treatment of events after the end of the reporting period is an essential element to reflect the financial position and operational results of a private entity. Summary of various requirements under the standard in this regard is that an entity shall adjust the amounts recognized in its financial statements, including related disclosures, to reflect

adjusting events after the end of the reporting period and shall not adjust the amounts recognized in its financial statements to reflect non-adjusting events after the end of the reporting period but shall disclose the nature of the event, and an estimate of its financial effect, or a statement that such an estimate can not be made for each category of non-adjusting events after the end of the reporting period. As per content of the Companies Act as regards to events after the end of the reporting period is that asset and liabilities should be adjusted for events occurring after the balance sheet date that provide additional evidence to assist with the estimation of amounts relating to conditions existing at the balance sheet date or that indicate that the going concern assumption in relation to the whole or part of the enterprise is not appropriate. Assets and liabilities should not be adjusted for, but disclosure should be made of, those events occurring after the balance sheet date that do not affect the condition of assets or liabilities at the balance sheet date but are of such importance that non-disclosure would affect the liability of the users of the financial statements to make proper evaluations and decisions. Accounting system and disclosure requirements as to events after the end of the reporting period is very much similar with the guidelines as mentioned in the standard.

Apart from recognition and measurement issue there are requirements of lot of disclosures in the financial statements of small and medium sized entity as per IFRS for SMEs but in no case contents of the Companies Act will be the hindrances of such disclosure because in the Companies Act it is mentioned that all material information should be disclosed that is

necessary to make the balance sheet clear and understandable so from above comparison between contents of the Companies Act and the standard it is clear that there is no obstacle to prepare and present the financial statements of small and medium sized private entities complying the IFRS for SMEs.

Though Companies Act will not be the obstacles to adopt the IFRS for SME but main challenge to adopt this standard would be dearth of proper knowledge, practice and giving due importance to account due to insufficient accountability system to prepare correct accounts by small and medium sized entities. Another important issue in this regard is tax matter. Tax is a vital issue for the businessmen of our country. Most of the businessmen would like to prepare their financial statements in such a manner so that they can get maximum benefit of tax. Moreover their remains a lot of practices followed by the tax authority which are not infavour of preparation of proper accounts such as disallowance of some actual expenditure and provision for bad debts, estimation of gross profit margin, consideration of tax deduction at source as final tax payable etc.

The descriptions pinpointed above are the main challenges to adopt the IFRS for SMEs. Despite those challenges for the greater interest of profession, depositors of bank, and investors in capital market and finally to bring about the financial discipline in private sector of Bangladesh implementation of IFRS for SMEs is very essential.

The Author is Vice President, ICAB

s a general rule, tips or advice should only be given when they are asked for. The students have not asked for my advice, I have written this because this may help the students in falling asleep!

Jokes apart, what has been written here is actually what I have tried when I was a student in pre-historic days. Since then, the syllabus has changed, the subjects have changed, the teachers, classrooms, books, everything has changed. Only one thing hasn’t, the pass rate in CA exams is still low, and the students still feel the exams are hard to pass.

While everyone has their own particular effective method of studying, a few things work for all. Let’s take a look at them:

1. Maintain a healthy lifestyle: Eat and sleep regularly, do some exercise everyday, in short, take good care of yourself. How does it help your studies? If you are not healthy, or suffering from any deficiencies, you won’t be able to study properly. You will be tired easily, will lose your temper often, and you will generally make yourself unpopular with all those around you!

Do not take any anti-depressant, stimulant, or anti-sleeping drugs without consulting a physician.

2. Dress well, groom yourself well, maintain a pleasant and positive attitude: This will increase your self-confidence, will improve your relationship with others, and will nurture a feeling of hope and optimism. This is very crucial for success.

3. Study regularly: As opposed to studying 18 hours a day only one month before the exam, it is far more effective to study 2-3 hours every day throughout the term. Find time to study whenever you think is convenient for you. It is healthier to sleep early, and rise at dawn and study.

4. Regulate your habits: It may not seem relevant, and certainly not easy, but you need to limit your usage of the mobile phone and internet. Excessive use of the cell phone and the net can turn into an addiction, which will affect your concentration in studies.


Tips for Chartered Accountancy StudentsSanjida Kasem FCA, FCMASanjida Kasem

FCA, FCMA is aMember ofICAB & ICMABPartner, A Qasem & Co.Chartered Accountants

Students’Section

A


5. Practice English: All your materials are in English, and you have to attempt your exams in English. Since it is not our first language, you should familiarize yourself with English as much as possible. Guaranteed spoken English courses are not often helpful. In addition to study materials, you should read English newspapers, watch English news channels and movies, and read English magazines and journals. Try to improve your vocabulary.

6. Prepare Notes: Instead of just going through several books, prepare your own notes on the selected topics. By doing so you would have the practice to write the answer within a specified time, and also will be able to summarise all the points into a concise format. This will save time at the revision stage.

7. Read a Standard everyday: Make a habit of reading one IAS/IFRS/ISA everyday. Once you have finished reading them all, you can start again from the beginning. BY doing this, you will not have to allocate extra time to read Standards immediately before the exams.

8. Prepare a plan for your studies: Just like preparing an audit plan, it is beneficial to prepare a comprehensive plan for your studies. This can be done in the following way:

• Decide which papers to attempt

• Speak to your supervisor at office and give notice for study leave

• Study the syllabus and scope of subject

• Decide on the methodology: Self study, group study, library work, class attendance etc. You may use a combination of two or more.

• Collect the study materials

• Collect question papers and model answers

• Study regularly 3-4 hours a day

• In the last 2-3 weeks before the exam, attempt a past question paper every day

9. Collection of study materials: Like audit evidence, your study materials should be current, relevant and reliable. For Law and Taxation Papers, you should collect the Bare Act in addition to text books and reference books. But many students neither know or read the Bare Acts and rely on materials and reference books. The Act is an essential element from which come the interpretation and the detailing of the legal requirements. And of course disputes in such interpretations take the form of case laws. You should also have the updated IFRS and ISAs, and cultivate the habit of reading the original Standards.

10. Complete your syllabus: While appearing for professional exams, you should not leave any parts of the syllabus untouched. You cannot expect to pass if you do not attempt the full 100 marks.

11. Do not burden yourself with too many reference books: It is better to read one book ten times, than to have ten books, and then not read them even once. Subjects like Accounting, Auditing, Taxation and Law are standardized, and thorough study one really good book will enable you to complete the whole syllabus. Then if you have the time and energy, you can try additional references.

12. Use your time effectively: When you study, do it attentively. Do not study with the TV switched on. Avoid speaking on the phone, unless it is really urgent.


13. Take breaks: Do not study at a stretch for too long. Take a short 5 minute break every 1-1.5 hours. During this time, do not watch TV or use the computer. Rest your eyes, stretch your legs, walk around a little bit, eat or drink something. In general, relax. Studying on an empty stomach will cause a headache.

14. Take mock exams: Practice writing in exam conditions as much as you can,. Attempt mock exams at home. This will help you to estimate the speed and quality of your writing.

15. Preparing for the exam: Start preparing for the exam 2-3 days before the exam starts. Buy your stationery and a stationery case. Get new batteries for your calculator. Photocopy your admit card and routine. Arrange your clothes for the exam days (wear something comfortable but not too old or shabby) and consult a doctor if you have any illness like influenza, toothache etc. It is better to start medication a couple of days before, rather than on the day of the exam. Don’t learn or read anything new on the day before the day of exam. All you should do is to revise what you have already done.

16. On the Exam day: Rise early, have a good breakfast, drink plenty of fluids. Do not become nervous, trying to revise too many things in the morning. If you are a religious person, say your prayers. Start from home early, allowing for traffic jams, bad weather etc. If you are using public transport, carry small notes and change with you so that you will not waste time while trying to pay your fare with large notes. Make sure you have got everything you need. Do not attempt an exam on an empty stomach.

17. During the exam: When you receive the question paper, spend some time to read it. First attempt the question you know best. This will create a good impression in the mind of the examiner. Write the question number and reference clearly. Always begin the answer to a question with one or two summary sentences. Begin a new paragraph for each point or idea. Attempt all questions. Underline key points. Write legibly. Do not write too small.

18. Save some time for revision and tidying up: Keep at least 10 minutes for revision. Keep

another 5 minutes for tidying up your script (signature, numbering, stapling additional scripts etc.). Do not speak to others during the examination.

19. Be professional in your presentation: Presentation is the method of communicating your knowledge to the examiner in the most appropriate manner. Communicating your knowledge means that what you mean and know is exactly conveyed to the examiner. There should not be any ambiguity in the answers. This is a professional exam, so your approach and presentation should match the requirements of the question. If you are required to write a letter or report, make sure it is good enough to be presented to a Partner at your office. If you are preparing a set of financial statements, make sure it is in the correct format and sequence as per the accounting and reporting standards.

20. After the exam: Do not distress yourself discussing your mistakes with anyone. What has happened has happened; it cannot be changed. Discussion will only spoil your other papers. Once all your exams are over, you should make a note of all the mistakes and drawbacks for future reference. Look them up before the next exams.

Wish you all the best!!

While everyone has their own particulareffective method of studying, a few thingswork for all.


1/15/ICAB-2010 28 March 2010

CIRCULARICAB New Curriculum

The Council ICAB in its meeting held on 23 March 2010 decided that from May-June 2010 onward, the following Examination Structure & Conversion Criteria would be followed by the examinees of ICAB in super-session of all previous Circulars issued in this regard.

1. Examination Structure

(i) The examinations structure shall comprise of 2-stages as follows:

Professional Stage (PS) Advanced Stage (AS)

Professional Stage examination shall again consist of 2 progressive level of examination as follows: 1. Knowledge level 2. Application level (ii) Professional Stage (Knowledge Level) i.e. PS (K) shall consist of 07 papers with examination duration of 1½

hours each except ‘Taxation-I’ which will be of 3 hours duration, as under:

Subject Duration Marks (1) Assurance 1½ hours 100 (2) Accounting 1½ hours 100 (3) Business and Finance 1½ hours 100 (4) Management Information 1½ hours 100 (5) Taxation-I 03 hours 100 (6) Business and Commercial Law 1½ hours 100 (7) IT Knowledge 1½ hours 100 700

(iii) Professional Stage (Application level) i.e. PS (A) shall consist of 07 papers with examination duration of 2½ hours each as under:

Subject Duration Marks (1) Audit and Assurance 2½ hours 100 (2) Financial Accounting 2½ hours 100 (3) Business Strategy 2½ hours 100 (4) Financial Management 2½ hours 100 (5) Taxation-II 2½ hours 100 (6) Corporate Laws and Practices 2½ hours 100 (7) IT Application 2½ hours 100 700

(iv) Advanced Stage (AS) shall consist of the following 04(four) papers with examination duration of 3 hours each except Case Study which will be of 4 hours duration:

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Students’Section


Subject Duration Marks

1. Financial and Corporate Reporting 03 hours 100 2. Advanced Audit and Assurance 03 hours 100 3. Business Analysis 03 hours 100 4. Case Study 04 hours 100 400

2. Pattern of Examination:

Pattern of examination for each paper will be as under:

(a) Professional Stage (Knowledge Level)

There will be 7 (seven) separate written examinations of which 6 papers will be held and assessed in short-form (short answer) questions except Taxation-I examination which will be held and assessed in traditional system.

(b) Professional Stage (Application Level)

There will be 7 (seven) separate written examinations in traditional system, all having 2½ hours duration.

(c) Advanced Stage (AS) Integration: There will be 03 separate written examinations in traditional system, all having 3 hours duration,

and 01 Case Study written examination will be of 4 hours duration.

3. Recognition of Examination Results

Paper by paper pass has already been allowed in all levels from the examination of November-December 2009 and it will continue.

4. Maximum Attempts for each paper

Students will be allowed a maximum of 06 (six) continuous attempts to pass a paper under new syllabus.

5. Step by step Examination

Students will be given the option to sit for one or more or all the papers of each level at a session. No examination for the next level will be undertaken before the previous level has been completed in entirety.

6. Frequency of Examination

Examination will be held twice in a year as per existing policy of the Institute.

7. Commencement of Coaching Class on New Syllabus

The Coaching Classes for the students under new Syllabus have been going on since January 2010.

8. Commencement of examination under New Curriculum

The last Examination of PE-I syllabus was held in November-December 2009. First Examination based on new syllabus for Professional Stage-Knowledge Level will start from May-June 2010.

The last Examination under PE-II syllabus will be held in May-June 2010. The First Examination based on

new syllabus for Professional Stage-Application Level will start from November-December 2010.


Students’Section

The last Examination under PE-III syllabus will be held in November-December 2010. The First Examination based on new syllabus for Advanced Stage will start from May-June 2011.

A student will be allowed to sit for the Case Study paper after completion of all other papers of Advanced Stage (AS).

9. Paper by Paper Exemption with Conversion

The Paper by Paper exemption with some conversion courses at the time of transition to new ICAB Curriculum would be as under:

Paper-by-Paper Exemptions

Exemption chart

PE-I (paper or half paper passed)

Student takes conversion course comprising ...

... and is allowed exemption for paper

Student must take

Financial Accounting (½) Preparing Ltd company accounts

PS (K) Accounting

Cost Accounting (½) PS(K) Management Information

Taxation-I PS (K) Taxation-IAuditing (½) PS(K) AssuranceBusiness Law (½) PS (K) Business &

Commercial LawInformation Technology PS (K) IT Knowledge

PS (A) IT Application PS (K) Business & Finance

PE II paper passed Student takes conversion course comprising ...

... and is allowed exemption for paper

Student must take

Advanced Financial Accounting

Principal differences between IFRS and Bangladesh GAAP

PS(A) Financial Accounting

Advanced Auditing PS(K) Assurance PS(A) Audit & Assurance

Corporate Laws & Practices PS(A) Corporate Laws & Practices

PS (A) Taxation-II

Management Accounting PS(K) Management Information

PS(A) Financial ManagementPS(A) Business StrategyPS(K) Business & Finance

Financial Reporting (½) Professional Issues (½)

Taxation-II PS(A) Taxation-IIFinancial Management PS(K) Business & Finance

PS(A) Financial Management

Strategic Management PS(A) Business StrategyAll AS papers

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10. The students who have passed the Intermediate Examination and will not be able to pass PE-II by May-June 2010 examination, will be required to appear at the following papers of Professional Stage Knowledge Level. After completion of the following papers, the students will have to pass all the papers of Professional Stage Application Level and thereafter the papers of Advanced Stage:

i) Assurance 100 Marks ii) Business and Finance 100 Marks iii) Management Information 100 Marks Total: 300 Marks

11. The Students who have passed Group “A” only of the Intermediate Examination under revised “C” Syllabus will be required to appear at the following papers of Professional Stage Knowledge Level. After completion of these papers, these students will have to pass all the papers of Professional Stage Application Level and thereafter the papers of Advanced Stage:

i) Assurance 100 Marks ii) Business and Finance 100 Marks iii) Management Information 100 Marks iv) Taxation-I 100 marks v) IT Knowledge 100 Marks Total: 500 Marks

12. The students who have passed Group “B” only of the Intermediate Examination under revised “C” will be required to appear at the following papers of Professional Stage Knowledge Level. After completion of these papers these students will have to pass all the papers of Professional Stage Application Level and thereafter the papers of Advanced Stage:

i) Assurance 100 Marks ii) Business and Finance 100 Marks iii) Management Information 100 Marks iv) IT Knowledge 100 Marks Total: 400 Marks

13. The students who have passed the Final Group-I Examination under “C” Syllabus or Revised “C” Syllabus will be required to appear at the following papers of Professional Stage and after completion of these papers the students will have to pass all the papers of Advanced Stage:

i) PS (K) Business and Finance 100 Marks ii) PS (A) Business Strategy 100 Marks iii) PS (A) Financial Management 100 Marks Total: 300 Marks

14. The students who passed the Final Group-I Examination under “A” or “B” Syllabus will be required to appear at the following papers of Professional Stage and after completion of these papers they will have to pass all the papers of Advanced Stage:

i) PS (K) Business and Finance 100 Marks ii) PS (A) Business Strategy 100 Marks iii) PS (A) Financial Management 100 Marks iv) PS(A) Taxation-II 100 Marks Total: 400 Marks


Students’Section

15. The students who passed the Final Group-II Examination under syllabus ‘A’ or ‘B’, but did not pass Final Group-I, will be required to appear at the following papers of Professional Stage and after completion of these papers they will have to pass all the papers of Advanced Stage:

i) PS (K) Assurance 100 Marks ii) PS (K) Management Information 100 Marks iii) PS (A) Audit and Assurance 100 Marks Total: 300 Marks

16. The students who passed the Final Group-II Examination under syllabus Old-C, having passed Intermediate Examination under syllabus ‘A’ or ‘B’, but did not pass the Final Group-I, will be required to appear at the following papers of Professional Stage and after completion of these papers they will have to pass all the papers of Advanced Stage:

i) PS (K) Management Information 100 Marks iii) PS (A) Taxation-II 100 Marks Total: 200 Marks

17. The students who passed both the Final Group-II Examination and Intermediate Examination under syllabus Old-C, but did not pass Final Group-I, will be required to appear at the following papers of Professional Stage and after completion of these papers they will have to pass all the papers of Advanced Stage:

i) PS (K) Assurance 100 Marks ii) PS (K) Management Information 100 Marks iii) PS (A) Audit and Assurance 100 Marks iv) PS(A) Taxation-II 100 Marks Total: 400 Marks

18. The students who passed the Final Group-II under syllabus ‘A’ or ‘B’ and also passed Management Accounting (being exempted from rest of the papers) of Final Group-I will be required to appear at the following papers of Professional Stage and after completion of these papers they will have to pass all the papers of Advanced Stage:

i) PS (K) Assurance 100 Marks ii) PS (A) Audit and Assurance 100 Marks Total: 200 Marks

19. The students who passed the Final Group-II under syllabus ‘Old-C’ having passed Intermediate Examination under syllabus ‘A’ or ‘B’ and also passed Management Accounting and Taxation-II (being exempted from rest of the papers) of Final Group-I under the syllabus Revised-C, will be required to appear at all the papers of Advanced Stage.

By Order of the Council

N I Chowdhury FCASecretary-ICAB

ALL MEMBERS OF THE INSTITUTE

1/15/ICAB-2010 04 October 2010

CIRCULAR In continuation of the Institute’s Circular of even number dated 28 March, 2010 regarding ICAB New Curriculum, the Council ICAB in its meeting held on 05 July & 19 July 2010 respectively resolved that the Examination Structure and Conversion Criteria as under would be followed by the examinees of ICAB:

Eligibility for examination after registration:

The students will be allowed to sit for the examination for the first time after 10(ten) months from the date of registration and this ten-month period will be counted from the date of registration up to the first day of May for the examination of May-June session and up to the first day of November for the examination of November-December session. Clarification of Attempts

a. All the papers of Knowledge Level must be completed within 4 (four) years from the date of registration, or in 06 (six) consecutive attempts counting from the first eligible attempt of the student concerned, whichever is later. Here an available opportunity to sit for any or more or all papers of Knowledge Level examination will be considered to be an attempt irrespective of whether the student concerned actually avails the opportunity or not (i.e. whether he/she actually sits for the examination or not);

b. All the papers of Application Level must be completed within 3(three) years after the completion of Knowledge Level (i.e. in maximum six consecutive examinations after the completion of Knowledge Level); and

c. All the papers of Advanced Stage (Integration +Case Study) must be completed within 3(three) years after the completion of Application Level (i.e. in maximum six consecutive examinations after the completion of Application Level).

Old Stream Students

1. PE-I Level:

Students who: (i) have neither passed, nor got exemption from, any paper or half paper of PE-I level, or (ii) have either passed, or got exemption from, one or more full/half papers (but not all the papers) of PE-I level must complete:

a. All the relevant papers of Knowledge Level by November-December 2012 examination (inclusive);

b. All the relevant papers of Application Level within 3(three) years after the completion of Knowledge Level (i.e. in maximum six consecutive examinations after the completion of Knowledge Level); and

c. All the papers of Advanced Stage including Case Study within 3(three) years after the completion of Application Level (i.e. in maximum six consecutive examinations after the completion of Application Level).

2. PE-II Level:

Students who have passed PE-I, but: (i) have neither passed, nor got exemption from, any paper of PE-II Level, or (ii) have either passed, or got exemption from, one or more papers (but not all the papers) of PE-II Level must complete:

Students’Section


Students’Section

a. All the relevant papers of Knowledge Level by November-December 2013 examination (inclusive);

b. All the relevant papers of Application Level within 3(three) years after the completion of Knowledge Level (i.e. in maximum six consecutive examinations after the completion of Knowledge Level); and

c. All the papers of Advanced Stage including Case Study within 3 (three) years after the completion of Application Level (i.e. in maximum six consecutive examinations after the completion of Application Level).

3. PE-III Level:

Students who have passed PE-II, but: (i) have neither passed, nor got exemption from, any paper or half paper of PE-III Level, or (ii) have either passed, or got exemption from, one or more full/half papers (but not all the papers) of PE-III Level, and (iii) thus have not qualified as CA, must complete:

a. All the relevant papers of Knowledge Level and Application Level by May-June 2014 examination (inclusive); and

b. All the papers of Advanced Stage including Case Study within 3(three) years after the completion of Knowledge and Application Levels (i.e. in maximum six consecutive examinations after the completion of Knowledge and Application levels).

The above students will be allowed to sit for the relevant papers of both the Knowledge Level and Application Level examinations in the same session.

Note: Item No.1 will come into force immediately. Item No.2 & 3 will come into force immediately after the PE-II and PE-III level examinations are discontinued respectively. Conversion Course

1. PE-I: Passed, or exempted from, Financial Accounting

Attend and successfully complete a conversion course on “Preparing Limited Company Accounts” (30 hours), organized by ICAB to obtain exemption from PS(K) Accounting. 2. PE-II: Passed Advanced Financial Accounting

Attend and successfully complete a conversion course on “Principal differences between IFRS and Bangladesh GAAP and most commonly applicable BAS/BFRS” (30 hours), organized by ICAB to obtain exemption from Financial Accounting. Note: Students will be assessed by a combination of end-of-course test, attendance records and in-course test(s) by teachers. If on assessment a student does not pass, he/she will have to pass the re-sit test to be arranged within 02 months after the end-of-course test. Students who do not satisfactorily complete the course will have to sit the main paper(s) for which they were working to obtain exemption.

By order of the Council-ICAB

N I Chowdhury FCASecretary-ICAB TO : ALL CA FIRMS

ALL NOTICE BOARDS OF ICAB



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