Corporate Laws & Practice

Question: - 1 (November – December 2021)

(1) ABC & Co., Chartered Accountants, Dhaka is the statutory Auditor of XYZ Bank Limited
for the year ended 3 1st December 2020.
Requirement:
State the signing procedures of the auditor's report to be followed by ABC & Co., Chartered
Accountants as per directives of the Financial Reporting Council.

(b) Describe the guidelines issued under the Financial Reporting Act 2015 for stopping abuse
of share money deposit applicable for Public Interest Entity (PIE)
(c) CBI-I Ltd, a non-banking financial Institution listed in both the stock exchanges in
Bangladesh. Currently CBH holds a market share of around 30% in home loan sector, and
it has been contemplating to acquire majority shares of another big non-banking Financial
Institution, CPTC Ltd (non-listed entity) who has a market share of 20% in home loan
sector. Accordingly, the management of CBH Ltd finalized a deal acceptable to CPTC
Ltd.
Requirement:
In view of this, the management of CBH Ltd approached you, seeking your advices on the
major compliances with the following laws:
i) The Companies Act 1994
ii) Bangladesh Securities and Exchange Commission laws
iii) The Financial Institutions Act 1993

Answer: - 1

Answer to the Question-1 (a)

According to paragraphs 47, A64 & A65 of the ISA 700 (Revised), the auditor shall sign the
auditor's report either in the name of the firm or in the personal name of the auditor or both. In
some cases, the law or regulation may allow for the use of electronic signature in the auditor's
report. However, According to Financial Reporting Council Notification ref. no:
146/FRC/SS/Notification/2020/71 dated 21 December 2020; the auditor shall sign the auditor's
report in his own name where the following 4 (four) information to be clearly mentioned:

Ka) Name of the Firm: .........

Kha) Firm Registration number. ...........
Ga) Signature of the Auditor ..............
Gha) Name of the Auditor (.........................Partner/ enrolment no ..........)
Answer to the Question-1 (b)

In pursuance with the authority given under the Financial Reporting Act 2015, to stop the
tendency of misuse/abuse of share money deposit, following guidelines have been issued vide a
notification dated 11th February 2020:
(2) Money received on account of share capital, which has been included in equity as share
money deposit or in any other name, cannot be withdrawn or refundable
(3) Money received under this account shall be converted to share capital within maximum 6
months
(4) Before converting into share capital, all such share money deposits shall be treated as
Potential Share Capital and should be included in EPS computation accordingly.

Answer to the Question-1 (c)

The major compliances in respect of acquiring majority shares of CPTC Led by CBH Ltd are
enumerated below:
(5) As per the provisions of the Companies Act 1994:
Following the provisions of the Articles/Memorandum of Association of the Company and
Companies Act 1994, CBH Ltd should upon recommendation from its Board of Directors, get
the deal approved in a Shareholders Meeting. In this regard, CBH has to convene an
Extraordinary General meeting of the shareholders, for which it has to serve a notice to its
shareholders by giving at least 21 days' time.

b) As per Bangladesh Securities and Exchange Commission laws:

Recommendation of Board of Directors of CBH Ltd for acquiring majority shares of CPTC Ltd
is a Price Sensitive information. Subject to the management proposal is approved, the
information must be disseminated to Bangladesh Securities and Exchange Commission and the
Stock Exchanges within half an hour of taking the decision by the Board. Additionally, the
information shall have to be published in at least two national dailies, one in Bengali and other
one in English. The same shall also be published in one online news paper and be made available
on the website of CBH Ltd. The Price Sensitive information shall highlight among others the
following:
1) The details of the scheme on acquiring majority shares of CPTC Ltd.
2) Date of the Extra-Ordinary General meeting and venue thereon (venue can be declared
at a later date as well)

c) The Financial Institutions Act 1993:

For acquiring majority shares of CPTC Ltd, CBH requires an approval from the Bangladesh
Bank.

In relation to this, section 28 of the Financial Institutions Act 1993 stipulates that no financial
institution may, without the prior approval of the Bangladesh Bank, acquire the majority of
shares in any other financial institution.
The Bangladesh Bank may, in the interest of considering an application for prior approval under
submitted under sub-section (1) of section 28 of the Financial Institutions Act 1993, call for any
information from the applicant, and it shall not cancel an application without giving reasonable
opportunity for a hearing to the applicant.

Question: - 2 (March – April 2021)

(6) Under Financial Reporting Act 2015 what are the determinants to qualify as a Public Interest
Entity in relation to "Yearly revenue', 'Total asset value' and Total liabilities excluding
shareholders equity'?
(7) Welfare Ltd (the company) is a Public Interest Entity as per the definition under Financial
Reporting '4 Act 2015. The company maintains a separate contributory provident fund (PF)
trust for all confirmed permanent employees of the company, which has been recognized by
the National Board of Revenue. In the said PF Trust, the company contributes 10% of the
basic salary as PF contribution and employees also contribute the similar amount as their
own subscription, which is deducted from their salary every month. For the year 2020,
following information are available for the following two outgoing employees:
(8) Mr. X served for the company for a period of 2 years 3 months from the date of joining, but
as a member of Trust for 1 year 9 months from the date of confirmation, left the company on
30th November 2020. At the time of leaving the company, the accumulated balance of PF
was Tk. 60,000 out of which Tk. 30,000 was on account of own contribution and the balance
Tk. 30,000 was on account of company's contribution.
(9) Mr. Y served for the company for a period of 1 year 9 months from the date of joining, but as
a member of Trust for 1 year 3 months from the date of confirmation, left the company on
30th June 2020. At the time of leaving the company, the accumulated balance of PF was Tk.
20,000 out of which Tk. 10,000 was on account of own contribution and the balance Tk.
10,000 was on account of company's contribution.
As per the PF Trust Rules, it has a policy of the Trust to forfeit the entire amount lying under
company's contribution unless the person completes minimum 2 years from the date of
confirmation and to allocate the same to the existing members upon taking a resolution in the
Trustee Board meeting. Accordingly, the Trust forfeited company's contribution of both X and Y
and now proceeding for taking a resolution for allocating the same to the existing members of the
trust.
Requirement:
Examine this based on the provisions of the Labour law/ Rules and the Financial Reporting Act
2015.
Answer: - 2

Answer to the Question-2 (A)

To qualify as a Public Interest Entity (PIE) under Financial Reporting Act 2015 the criteria of
'Yearly revenue', 'Total asset value' and Total liabilities excluding shareholders equity' are
described below:
a) Criteria of Yearly revenue' for PIE is Tk. 5 crores based on prior year's yearly revenue
b) Criteria of 'Total asset value' for PIE is Tk. 3 crores
c) Criteria of Total liabilities excluding shareholders equity for PIE is Tk. 1 crore
Answer to the Question-2 (B)

Comments based on the provision of Bangladesh Labour Rules 2015:

As per Rule 263 of the Bangladesh Labour Rules 2015, any member leaving the company is
eligible for getting both employers and own contribution, if he/she completes two years from the
date joining. Here date of confirmation will not be counted.
· Hence, in case of Mr. X he will be entitled to get both employers and own contribution of
Tk. 60,000 as he has completed 2 years 3 months from the date of joining
· However, in case of Mr. Y, since he has not completed two years of employment from the
date of joining, Mr. Y will be entitled to get only his own contribution of Tk. 10,000 and
the rest Tk. 10,000 will be forfeited
Comments based on the provision of Financial Reporting Act 2015:
· As per notification issued by Financial Reporting Authority (FRA) dated 7th July 2020, it
will intervene on the allocation of Forfeiture Account to the existing members.
· Hence, we will discuss about the amount to forfeited on account of company's
contribution for Mr. Y i.e., Tk. 10,000
· Based on the above-mentioned circular, FRA has clarified that no amount lying under
forfeiture account should be allocated to the existing members, hence the Trust cannot
take any such resolution
· FRA further instructed, any such amount lying under forfeiture account should be
returned to the PIE (in this case Welfare Ltd), which the PIE should show as other income
in its financial statement.
Question: - 3 (November – December 2020)
(a) During the course of audit being an enlisted auditor in a Public Interest Entity, you have
identified certain highly significant irregularities, which have been done purposefully to inflate
the share price of the company artificially. You are wondering, if you report this, you may no
longer be an auditor of this company in the future.
Requirement:
Explain your responsibility quoting the Independence you have as an auditor based on the
provisions of Financial Reporting Act 2015
(b) ABC Limited. is a private limited company engaged in restaurant business. Its turnover for
the year ended on 30 June 2020 was Tk 6 crore. But due to the on-going COVID-19 pandemic its
turnover has fallen down to Tk 50 lac only during the first 4 months from July to October 2020.
And it is estimated that the total turnover for the year 2020-2021 will be Tk 2.50 crore only. Its
gross assets as on 30 June 2020 were Tk 2 crore, equity Tk 1.50 crore and total liabilities Tk 1
crore.
The authorized capital and paid-up capital of the Company are Tk 1 crore and Tk 25 lac
respectively. Its equity of Tk 1.50 crore includes inter alia share money deposit of Tk 25 lac
received by the Company on 25 June 2020. It employs 100 people.
Requirements:
i) Will ABC Limited be considered a public interest entity in the year 2020-2021? Why?
ii) Advise the management of the Company about refunding of the share money deposit or
issuing of share capital, considering the Rules/Regulations, if any, issued under the FRA 2015
and the provisions of the Companies Act 1994.
Answer: - 3

Answer to the Question-3 (a)

As per the Financial Reporting Act 2015, the independence of the auditors while carrying out
responsibilities are as follows:
(10) An enlisted auditor will perform his/her duties independently and he/she will not
do any work contrary to the audit practice code made by the Council or will not be
involved in any such activity as the enlisted auditor [ref. section 37(1))
(11) The Council may review the specific procedures for providing necessary
assistance and information about the audit practices by the auditor enlisted by regulation
[ref. section 37(2)]
Under the circumstances, the enlisted auditor in public interest entity, identified serious
irregularities in relation to inflating share price. Hence, the enlisted auditor should immediately
do the following:
(12) Inform the details description of the irregularities in writing to the members of the
Board of Directors of Public Interest Entity and its officers; and
 (13) Request every person referred to above individually and jointly to take
appropriate actions in relation to such irregularities
If the concerned Public Interest Entity does not take any action in respect of such irregularities
despite informing them by the enlisted auditor in writing, the enlisted auditor in that
circumstances may consider the matter to inform to the Council, the Professional Accounting
Institute, the Controlling Agencies and so on and any other statutory body or Parliament
established under the law or rules as per the law.
Answer to the Question-3 (b) (i)
The Company will be considered as a public interest entity for the following reason. When an
organization fulfill any one of the following conditions:
(a) Revenue of an organization is Taka 5 crore or above in the previous financial year; or
(b) Net Asst of an organization is Taka 3 Crore Taka Liability without equity is Taka 1 Crore or
above in the previous financial year.
Answer to the Question-3 (b) (ii)
Advise the management of the Company about refunding of the share money deposit or issuing
of share capital, considering the Rules/Regulations, if any, issued under the FRA 2015 and the
provisions of the Companies Act 1994.
(a) Share money deposit is not refundable
(b) Share money deposit to be converted / transferred to Share Capital within 6 months from the
date of receipts
(c) Share money deposit to be considered while calculation EPS
Question: - 4 (November – December 2019)
You are a Director (Audit) of ABC & Co., Chartered Accountants. Recently Mr. A, the Managing
Partner of the firm, has asked you to go through the Financial Reporting Act 2015, and prepare a
quick summary of the important provisions of the Act that the firm needs to comply with for
conducting audit of the listed companies and other entities, if any. After going through the Act,
you have come out with the following summary points:
(14) The firm needs to get enlisted immediately with the Financial Reporting Council (FRC)
in order to be eligible for appointment as auditor of any listed company and any other public
interest entity.
(15) Besides the listed companies, all bank companies, financial institutions and insurance
companies are public interest entities.
(16) Only the audit firms can be enlisted with the FRC.
(17) If any partner of the enlisted auditor firm resigns, this has to be notified to the Council
within a reasonable time of the resignation.
Requirements:
(a) Do you think that the above summary points are correct? Discuss.
(b) Which division of FRC is responsible for monitoring and oversight of the audit practice in
Bangladesh? What are the responsibilities of this division? Discuss. 8
Answer: - 4

Answer to the Question-4 (a)

(18) According to section 31(1) of the Financial Reporting Act 2015 (FRA), notwithstanding
anything contained in any other laws for the time being in force, after the effectiveness of
FRA, no auditor or audit firm shall, without the enlistment to the Council, be eligible to be
appointed as the auditor of a public interest entity or shall provide any service in relation to
audit.
However, since no rules and regulations have yet been framed under the FRA, the firm cannot
get enlisted with the FRC immediately. Most probably the FRC will inform about such
enlistment publicly when the rules and regulations are in place. Meantime the firm can continue
working as auditors on the basis of its practicing licence from ICAB.
(19) Besides the listed companies, all banking companies, financial institutions and insurance
companies, the entity which will satisfy anyone of the following determinations will be
considered as a public interest entity:
(20) Microcredit Organization as defined in Section 2(21) of the Microcredit
Regulatory Authority Act 2006;
(21) Any organization yearly revenue of which has crossed the limit of last year
revenue as notified by the Council through Govt. Gazette;
 3. Any organization which has fulfilled any two of the following conditions at the end of
last yea
a. It has recruited the minimum number of persons as set by regulation;
b. Total assets of the organization have crossed the limit fixed by the Council in the official
Gazette;
c. Total liabilities excluding shareholders' equity have crossed the limit fixed by the Council
in the official Gazette notification;
The following organizations fulfilling the conditions as set out above will also be considered as
public interest entities:
1. Company or commercial organizations under the ownership of Government.
2. Statutory authorities;
3. Non-Govt. organizations directed by individuals; and
4. Other such organizations.
(iii) According to Section 32, read with Section 2(9), 2(13), 2(15) and 2(16) of the FRA, 2015,
not only the audit firms but also any person or the owner, partner or employee of any audit firm
related with providing the audit services who is registered with any professional accountancy
institute, (i.e., ICAB and ICMAB), as defined in Section 2(19) of the FRA 2015. It transpires
from Section 2(16) of the FRA 2015 that the ICAB practicing members may be enlisted for
financial/statutory audit and ICMAB practicing members for cost audit.
(iv) According to Section 31(2) of the FRA 2015, if an enlisted auditor or any partner of an audit
firm resigns from or joins such firm, the Financial Reporting Council shall be intimated in
writing within 15(fifteen) days of such resignation or joining.
Answer to the Question No-4 (b)
The Audit Practice Review Division of FRC is responsible for monitoring and oversight of the
audit practice in Bangladesh. The responsibilities of Audit Practice Review Division shall be as
follows:
1. Monitoring activities related to the audit practice of the professional accountancy organization;
2. For the purposes of the FRA, review of audit practice of any organization which assists the
scheduled auditor, audit firm or auditor on the basis of randomization;
3. Determining the non-compliance with the audit practice code under the FRA and auditing
standards by any organization which assists the scheduled auditor, audit firm or auditor;
4. Once every 3(three) years-
i) Review the regulatory measures of the organization concerned;
 ii) Review whether it has taken necessary steps for the development of an accountancy
profession by maintaining professional standards;
iii) Review whether it is carrying out the responsibility of protecting the public interest by
implementing the purpose of the other public interest described in its charter;
2) For the purpose of the FRA, the Council, may by the prior approval of the Government, by
notification in the official Gazette, make rules and procedures for the discharge of duties of the
audit practice by making regulations.
3) The Audit Practice Review Division will inform the concerned person or organization in
writing about the review report prepared by them, and if the person or organization has any
objection to the matter, then it may directly submit it to that Division.
4) If any failure is found during the performance of the FRA, the Audit Practice Review Division
will inform the department concerned for opinion and recommendations about the matter and
take appropriate action on the basis of opinion and recommendations received by the division.
5) Subject to the provisions of the FRA and the rules made thereunder, the Audit Practice Review
Division shall perform its review in accordance with the procedure prescribed by it.