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VOL 23 NO 53 REGD NO DA 1589 | Dhaka, Sunday, January 3 2016
Posted : 03 Jan, 2016 22:33:49 AA-A+
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Systemising compliance audit
AKA Muqtadir

While audit is a periodic scrutiny of records, compliance is a continuous process suggesting it as a necessary exercise. For corporate entities, compliance is implementation of or abidance to the governing rules and regulations. And since it entails fulfilment of essential requirements, compliance is obligatory and so is its audit. 


In order to improve the governance standard of listed companies, the Bangladesh Securities & Exchange Commission (BSEC), the regulatory authority for listed securities, has laid down the detailed guidelines on corporate governance, which are obligatory for all the listed entities. In the guidelines [Notification, vide no: SEC/CMRRCD/2006-158/134/Admin/44 on August 07, 2012], it is laid down, along with other requirements, that a company will present its governance check-list duly marked therein as to its compliance or otherwise. Additionally, the company is obliged to obtain a further statement called 'certificate of compliance' from expert professionals what would be an independent certification about compliance status of the governance guidelines by the company. Both the statements are to be published in its annual report to be sent to the shareholders. So, in a nutshell, the Notification has laid down: (a) the minimum standards of governance for a listed company, (b) officials responsible for compliance to the same, (c) an elaborate check-list for its compliance, and (d) an independent certificate from external experts substantiating such compliance. All this to bolstering standard of corporate governance in the country. 


However, like many other rules and regulations in Bangladesh falling short of necessary follow-up and eventually losing effectiveness, the concerned governance guidelines are also facing up the same and seem to be falling apart from its objectives. This is mainly due to some inherent snags in the guidelines, on the one hand, and lack of initiatives, on the other, from the regulators in systemising the whole process for its smooth execution. Here, we may mention a few of such snags and shortcomings in the process.


CODES OF CONDUCT: The Notification under rule 1(2)(v) requires codes of conduct for all directors, under rule 1.4 requires statement of roles & responsibilities separately for Chairman and CEO (chief executive officer); under rule 2.1 it requires statement of roles, responsibilities and duties separately for the CFO (chief financial officer), Company Secretary and Head of Internal Audit; under rule 3(iii) there has to be a narrative of duties for the Audit Committee; under rule 6 requires due diligence declaration by the CEO & CFO. There are a few others as well. So, to be able to issue a certificate of compliance required under rule 7(i) of the said Notification, the compliance auditor ought to be satisfied not just about mere existence of the said codes of conduct, statements and declarations, but also that those are meaningful in the context and pretext. 


Now, in the absence of any standardised texts for the above statements, companies often tend to present a half-page or one-page document to substantiate their abidance to the requirements! They plead that since there is no designed formats, they have developed those on their own.


FRINGE DECLARATIONS: Though not exactly mentioned, but based on the guidelines given out in the Notification, it also seeks to support neutrality of some of the incumbents, namely, the independent directors and the external auditors. Quite a lot of fairness marks is required to be an independent director under the guidelines. The external auditors also have limitations for their involvement in the same company. Those cases demand detachment declarations by the parties for the sake of objectivity of the whole exercise. No standard text, however, is there for such declaration. 


CERTIFICATE OF COMPLIANCE: The BSEC Notification on corporate governance requires an independent certificate to further substantiate company's compliance to the governance guidelines but has not prescribed any format or outline as to the text of such certificate. Taking that void as a pretext, what we see now is a variety of certifications. If standards are what we all talk about, then such certificate should also be standardised.


The Notification has also listed out professionals who are eligible to provide the compliance certificate. Then, realising the underlying conflict of interest, soon the external auditors were excluded from such certification assignments. Now, such certificates are coming out from all and sundry! But, here again it falls short of what is called professional discipline. Compliance is the central and most sensitive aspect of governance which is the prime task of the corporate Boards. Working in corporate governance, as such, requires specialised knowledge and expertise. It is certainly not open for all. 


Like all other professionals in respective fields, Chartered Secretaries are rendering their specialised services in the core areas of corporate governance. Their services are regulated by ICSB (Institute of Chartered Secretaries of Bangladesh), which is a separate and fully independent professional body. Rendering certificate of compliance requires thorough prior compliance auditing. One who holds the recognised and relevant professional qualification and has a necessarily relative profile of excellence should only be authorised to undertake the task of such delicate auditing. Like cost or tax audit is different from routine financial audit, the concerned compliance audit is also different and distinct from other usual audits. 


Compliance audit is different in that it is a 'comply or explain' audit, without relevance to finance. It is the perusal of a company's essential and sensitive regulatory responses, without pervading the company's routine debits and credits. Then, it is distinct since it showcases Board excellence to the stakeholders. Thus, compliance audit is a unique as well as intricate exercise. Compliance audit should be performed only by the rightful professionals. It is imperative to systematise the processes involved by standardising the tools and means necessary in the exercise.


 AKA Muqtadir FCS is CEO & Chief Consultant, Al-Muqtadir Associates, Chartered 


Secretaries & Consultants.


 muqtadir@muqtadirbd.com


 
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