International Accounting Standard compliance analysis on nine pharmaceutical industries in...

CHAPTER 1INTRODUCTIONTHIS CHAPTER WILL COVER THE FOLLOWING THINGS THROUGH OUT ITSSPAN

Introducing reader with IFRS ,BAS , BFRS and ICAB Background of the conducting the research / study Main motive of conducting this research ; that mean research goal Drawback that might be faced by the researcher while conducting his study The valid reasons of directing such research





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1.0 Introduction

International Financial Reporting standard is the global language of recoding, representing,

demonstrating and analyzing transaction, situations, and event affiliated with accounting. It also

provides interpretation in case of dispute raised in selection of proper standard from available

standards by reducing the number of alternative treatments. (Jon; Mouton 2000)

Day by day companies are intends to expand their business across their national boundary thus

shareholder base is created from different nation. By replacing different national accounting

standard the IFRS make it easy for the every firm operating outside their domestic market to

represent their financial position in a universal way, IAS, and also give them relief from the

complexity, difficulty, time and effort to get them accustomed to different national accounting

standard (Watts, Zimmerman, J. (1978))

IFRS helps to develop the modern era of accounting by clearly defining type of financial

statement to be prepared, financial statement objectives , qualitative characteristics of financial

statement , elements of financial statement ,rule to be exercised in recording and setting those

elements , recognition of those financial statement elements, measurement of those elements

and reporting of those financial statement element.(Zahir M.(2000))

The accounting world is wholly relies on the paths that IFRS prescribed to follow. This strong

dependency on IFRS created because IFRS conduct itself toward a broad objective “To develop

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a single set of high quality, understandable, enforceable and globally accepted financial reporting

standards based upon clearly articulated principles”. To meet the objective IFRS diversify its

development activities into different internal and external standard setting bodies such as

IFRSAC, conduct activities through combined participation and systematic manner, engage with

investors, regulators, business leaders and the global accountancy profession to get support,

comments, suggestion and criticism of development activities as well as collaborate

development of different accounting standard setting bodies.

IFRS initiated for the first time to resolve accounting phenomena and give guidance in

accounting practice in the organization; operating in European Union. Later IFRS got its

popularity around the word due to its rapid development of standard and rule which leads to

record transaction in an understandable, reliable, comparable and relevant manner; consequently

created harmonized accounting across in European Union. Although there are some criticism

from the part of US and France accounting standard; more than 100 countries adopt IFRS as their

accounting standard by the end of 2008.( Tower, Hancock & Bryant;1999)

The Institute of Chartered Accountants of Bangladesh (ICAB), which is an apex body

for the development of accounting profession in Bangladesh, has been working for the

adoption and improvement of accounting standards based on the prospects of IAS. The ICAB

consistently executes programs to adopt IAS as Bangladesh Accounting Standards (BAS).

The certified auditor from ICAB also take IAS as scale of justification , analysis and giving

opinion and decision about the financial statements accuracy , financial position of the company

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and giving qualified or unqualified report about the companies being audited. The Securities and

Exchange Commission (SEC) of Bangladesh requires the issuers of listed securities to prepare

financial statements in accordance with the requirements laid down in the Regulation and the

IASs as adopted by the ICAB. (Zahir M., 2000)

The stock exchange enlisted pharmaceutical industries; like other Industries; also conduct their

accounting practice in accordance with the International Financial Reporting Standards (IFRSs),

and Bangladesh Financial Reporting Standards (BFRSs). These firm comply with IFRS/ IAS in

case of revenue recognition, valuation of PPE ( property , plant and equipment) , depreciation of

PPE , recognition of asset, impairment of assets, calculation of tax , share premium and EPS ,

and preparation of prescribed financial statements

In this research paper, the main focus will be on the IAS adopted by BAS, compliance of those

IAS in accounting practice of the firm operating within pharmaceutical industry, area of

inconsistent practice of IAS , development of IAS , adoption of updated IAS by the firm of the

industry, recommendation on the whole scenario and findings of the ultimate efforts.

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1.1 Background of the Study

The research paper has been conducted over 7 pharmaceutical companies’ accounting

practice in reporting and presenting financial position; entailed in their annual reports

(2011-2012) that are made to public; to realize the degree of consistency and

compliance of practicing accounting treatments with IAS rule or IFRS standards.

Since U.K based financial reporting increasing gaining its popularity around the world

due to its greater effort in affiliating national and international standard and helping

national standard setting bodies; it is prominent for Bangladesh to adopt it in all aspect

of accounting practice. As Bangladesh is a developed country it business operation is

expanding across national order and complexity in trisection is also increase at a

greater extent, it is urgent for it to comply and expertise IFRS because most of the

country related with U.K follow IFRS and IFRS provide flexibility to resolve

exceptional trisection which are not covered by existing standard by allowing to use

principle based approach (IFRS).

IFRS – Co-ordination with National standard setters is done through a process which

gives full freedom to NSS while adopting IAS/IFRS. For clear view process given

bellow –

1. Co-ordination of work plan with national standard setter (NSS)

2. IASB continue to publish ED & other documents for public comment

3. NSS publish their ED at the same time & seek comment on significant

divergence b/w two

4. NSS follow their own full due process

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So our study is about to compliance of BAS with IAS and Adoption of IAS in

parasitical industries

1.2. Objective of the Study

To find out the IAS compliance with BAS practicing within these companies Also

interpret the area where BAS is somehow differs from related IAS rules

Sorting the BAS and IAS from the whole population of BAS and IAS principle or rule

( which are exercising within the industry ) and creating a relative comparison among

them

A little bit analysis on company performance to justify whether full application IAS is

more successful then customized IAS for the nation or industry

Point out the auditors opinion and the guideline they follow in case of auditing in the

industry

Interpreting draw backs of IAS or BAS , Epitomize the finding and giving

recommendation

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1.3. Limitation of the Study

The study faced various problems which have been tried to overcome but there are some certain

limitations. The major limitations are:

Limitation of the study

The study is not based on the population, it’s based on sample. So the entire

scenario cannot be found here.

This study is for educational purpose. No professional purpose is included in

this report.

Data collection is done from secondary sources as well beside publication IASB and

ICAB. So, the reliability of this data is related with publishers, writer or analysts made

sources of secondary data.

I have few practical experiences in analyzing the Annual Reports. So, there

may be some lack of professionalism in this report

Provability of skipping prominent data for the study mistakenly

Shortage of time , assistance and resources

There is only one source for finding the annual reports in Bangladesh. Only

SEC (securities & Exchange Commission) reference room is the only source

of these annual reports

Some judgments are made on assumption, finding or secondary data. So I can’t provide

100% assurance on all analysis , judgments and discussion that I made throughout the

report

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1.4. Rationality of the Study

Every work or effort is directed to get something effective in use or get something which

contains utility to the person performing it or other. Our attempt to conduct the study is not

exceptional in that sense. We conduct our study to get idea about ---

Scenario of accounting practice in Bangladesh by analyzing an industry- pharmaceutical

industry- as a sample

How advance the accounting practice of Bangladesh on the side of compliance of IAS ;

which has growing importance in now a days

Procuring knowledge about national standard of accounting practice ; developed on the

light of IAS ; developed by Bangladesh national standard setting bodies

Whether any major change has been made in case of applying IAS or BAS or new

adoption of IAS has been made in recent years in pharmaceutical industries

At all ; help in developing mindset and gaining know-how about how different

instrument , rule and principle is applied in real business world practice ; which

consequently provide us a practical view about different standards and thus put a strong

scar on the mind plot

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CHAPTER 2THEORITICAL FRAMEWORKTHIS CHAPTER WILL COVER THE FOLLOWING THINGS

Covering approaches of accounting Presenting major difference between IFRS and GAAP A little bit focus on regulatory system of IFRS Discuss about IFRS standard setting procedure Depicting conceptual framework of IFRS Importance or benefits of IFRS adoption

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2.0 Two Major Approaches of Accounting

Companies operating across globe adopt one of two main approach of accounting named- IFRS(

international Financial reporting standard ) and GAAP( generally Accepted Principles);

providing guideline in preparing, reporting and representing all sorts of accounting information,

trisections and event and even resolving dispute. (Street, Gray & Bryant; 1999)

The basic difference between IFRS and GAAP are –

1. IFRS is principle based and GAAP is principle based

2. IFRS is developed by standard setting body named IASB( international Standard

Setting bodies ) whether GAAP is developed by FASB (International Accounting

Standard Board )

3. IFRS is U.K based approach and GAAP is U.S based approach

There are other similarities and dissimilarities exist between these major domains of standards

given in following exhibits-

Topic GAAP IFRS IFRS for SMEs (small and mediumsize entities )Fundamental basis Generally , specificguideline and rules Generally moreprinciple andjudgmental basedand few specificguideline and rulesGenerally moreprinciple andjudgmental basedand few specificguideline and rulesLIFO inventorycosting Allowed Not allowed Not allowed

Inventoryvaluation Lower of cost ormarket Lower of cost ornet realized value Lower of cost ornet realized valueGoodwill carryingvalue Goodwill is notamortized ; 2 stepimpairment test Not amortized ;one stepimpairment test Amortized forperiod up to 10years ; one stepimpairment test

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Impairment andwrite downs No reversal Can be reversed (except goodwill) Can be reversed (except goodwillLeasing Guideline andspecific tests Similar guidance ;no specific test Similar guidance ;no specific testReserves Record whenprobable Record when “more like than not” Record when “more like than not”Consolidation Consider variableinterest first thenvoting interest Non variableinterest entityequivalent butsimilar guideline ;evaluate all controlelements andconsolidatedcontrolled entities

Non variableinterest entityequivalent butsimilar guideline ;evaluate all controlelements andconsolidatedcontrolled entitiesR&D costs Generally bothconsidered asexpense Research isexpensed anddevelopment iscapitalizedBoth are expensed

Borrowing cost forself – constructedassets Generallycapitalized andamortized Generallycapitalized andamortized ExpensedHedge accounting Rigorous andspecific guidanceto apply hedgeaccounting

Rigorous andspecific guidanceto apply hedgeaccountingSimplified ; onlycertain hedgetypes allowed

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2.1. Regulatory System and Regulatory Bodies of Accounting on the

Perspective of IFRS Standards

The regulatory system of accounting in IFRS is comprised with three major regulatory bodies

named-

IASC (international Accounting standard committee) or IFRS foundation:

this body; comprising with 22 trustees; is responsible for all governance issues , inquiring of

whether other standard setting bodies are properly founded or not , developing universal

standard, application of those standards in generating relevant information for investors and

creditors , promotion of those standard and setting a bridge among national and internal

accounting standards

The IASB (International Accounting Standard Setting Bodies):

This body is founded with 14 members and responsible for issuing new-new standard overtime

with the change of situation, condition and circumstances. The developed standard of this body

is previously known as IAS ( international accounting standard) but now a day the name is

replaced by IFRS( international financial reporting standard). Mission, vision, objective and

responsibilities are identical and consistent with IASC/ IFRS foundation

The IFRIC /IFRS foundation:

This body issue rapid guidance on accounting matters whenever a conflicting situation arise in

case of applying standard ( IFRS ); usually happens in case of dealing with alternative accounting

treatment accountant will face dilemma in making make choice about which standard is need

to be selected. For example: IFRIC 1, IFRIC 2 etc (interpretation set given by IFRIC)

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It is important to know about IFRIC and in gist IFRIC is –

The SAC (standards Advisory Council) or IFRS Advisory council:

SAC provide a forum of professional from different professional fields, business and location to

assist in developing standards and creating new standards.

There are some important know how about SAC are –

Provide guidance on application and interpretation of IFRSDeals with newly identified FR issues not addressed in IFRSIssues where unsatisfactory or conflicting interpretation have developed or likely to develop

SAC features SAC featuresGive advice to board and trustees of IASB Meetings discussion and finding is open topublicComprises of 50 members Advise IASB on prioritization of its work andon Implication of proposed standardsConsistently Consulted by IASB on all projectsand aspects of its functioningMeets at least 3 times a year with IASBtrustees for discussing important issues

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The relationship among these bodies can be articulated as follow—

Advice

Appointed by

Appointed by appoint report to

Report to overview

Govern fraud

Interpretation

Creates

Trustee Appointment Advisory Group Trustee advise IASC Foundation to appoint, overview and govern fraud in IASB ,IFRIC

and SAC

IASC Govern , appoint and overview SAC and IFRIC

IASB report to IASC and create IFRS standards

SAC report to IASC and help IASB in case of developing new standards

IFRC provide interpretation to IFRS standard ; issued by IASB

TrusteeAppointment

AdvisoryGroup

IASC foundation

IASB

SAC

IFRIC

IFRS standards

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2.2 Formation Process of IAS/ IFRS with the Combined Effort ofSAC, IASB and IASC

The creation of new standard or amendment made to the existing standard is done througha straight forward way.

The procedure of development of new IFRS is as follow-

step 1

• Forming a forum of professionbal from different business , professional areas andloacality

• Assigning the professional group to advise IASB in case of developing standard s (IFRS/IAS)

step 2

• Identify the subject to be adressed by intended standard ; need to be developed• Deployed professionals analyze the suject and gather idea about how to represent the

subject in a relevent and appropriate way in the aspect of accounting treat ment .Inform IASB about the best ideas about adressing the subject which coonsequentlyenable IASB to develop strandards

step 3• Make a exposer darft of the intended standard ; which actually a draft version of the

future standards

Step 4• publish the exposer draft to the public to encurage public comment, perception , idea

and sugession on the intended standards

Step 5• Based on the consideration of the relevent comments ; received in draft ; IASB

decide whther to finalize the indented standards or not or is there any nacaessityto make any amendment on the drafted standards

step 6• At any stage IASB has full right to issue dicussion paper to encurage public

,professioan and members comments

Step 7• The publication of IFRS , IFRIC interpration ,exposer dardft and final standrd

will became in practice and public only when 8 out of 14 members of IASBagreed together

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• Make a exposer darft of the intended standard ; which actually a draft version of thefuture standards

• publish the exposer draft to the public to encurage public comment, perception , ideaand sugession on the intended standards

• Based on the consideration of the relevent comments ; received in draft ; IASBdecide whther to finalize the indented standards or not or is there any nacaessityto make any amendment on the drafted standards

• At any stage IASB has full right to issue dicussion paper to encurage public,professioan and members comments

• The publication of IFRS , IFRIC interpration ,exposer dardft and final standrdwill became in practice and public only when 8 out of 14 members of IASBagreed together

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• Make a exposer darft of the intended standard ; which actually a draft version of thefuture standards

• publish the exposer draft to the public to encurage public comment, perception , ideaand sugession on the intended standards

• Based on the consideration of the relevent comments ; received in draft ; IASBdecide whther to finalize the indented standards or not or is there any nacaessityto make any amendment on the drafted standards

• At any stage IASB has full right to issue dicussion paper to encurage public,professioan and members comments

• The publication of IFRS , IFRIC interpration ,exposer dardft and final standrdwill became in practice and public only when 8 out of 14 members of IASBagreed together

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2.3 Benefits of Adoption and Compliance of IFRS/IAS

There are numerous benefits of applying IAS / IFRS in accounting practice. The major benefitsare noted bellow to realize the opportunity cost of using IAS rather than using national standard.

Benefits of IAS /IFRS application

Provide Better financial information for shareholders

Better financial information for regulators

Enhanced internal and external comparability

Improved transparency of results

Increased ability to secure cross-border listing; Better management of global operations; anddecreased cost of capital.

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2.4. Conceptual Framework of IFRS / IAS

The IASB Framework was approved by the IASC Board in April 1989 for publication in July

1989, and adopted by the IASB in April 2001.

Conceptual framework define the nature and purpose of accounting as well as deals with

theoretical and conceptual issues related with financial reporting; thus forming a coherent and

consistent foundation for developing accounting standard .more specifically conceptual

framework is a coherent system of interconnected objectives and prominent principle which

recommend the nature, function, limit and convention of financial accounting and financial

statements.

Conceptual framework is important because it ensure the consistent development of accounting

standard or GAAP in accordance with established principles. Fire fighting situation is carefully

handled by conceptual framework thus reduce conflicts between different accounting standards

or accounting standards and legislation. If conceptual framework is not applied consistently,

more important issues relating with development of a certain standard will be overlooked willy-

nilly. Conceptual framework covers exceptional transactions; which are not the subject of an

accounting standard; by using its increased flexibility. Conceptual framework of accounting is

two dimensional – (1) FASB based and (2) IASB based.

FASB based conceptual frame deals with ---

a. The objective of financial statements;

b. The qualitative characteristics that determine the usefulness of information in

financial statements;

c. The definition, recognition and measurement of the elements from which

financial statements are constructed; and

d. Concepts of capital and capital maintenance.

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Objective of financial statements:

The objective of financial statements is to provide information about the financial

position, performance and changes in financial position of an entity that is useful to a

wide range of users in making economic decisions. Financial statements prepared for this

purpose meet the common needs of most users. However, financial statements do not

provide all the information that users may need to make economic decisions since they

largely portray the financial effects of past events and do not necessarily provide non-

financial information.

In order to meet their objectives, financial statements are prepared on the accrual basis of

accounting.

The financial statements are normally prepared on the assumption that an entity is a going

concern and will continue in operation for the foreseeable future.

Qualitative characteristics:

Qualitative characteristics are the attributes that make the information provided in

financial statements useful to users. The four principal qualitative characteristics are

understandability, relevance, reliability and comparability. In practice a balancing, or

trade-off, between qualitative characteristics is often necessary.

Elements related with financial statements:

The elements directly related to the measurement of “financial position” are assets,

liabilities and equity. These are defined as follows:

i. An asset is a resource controlled by the entity as a result of past events and

from which future economic benefits are expected to flow to the entity.

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ii. A liability is a present obligation of the entity arising from past events, the

settlement of which is expected to result in an outflow from the entity of

resources embodying economic benefits.

iii. Equity is the residual interest in the assets of the entity after deducting all

its liabilities.

The elements of “income and expenses “are defined as follows:

i. Income is increases in economic benefits during the accounting period in

the form of inflows or enhancements of assets or decreases of liabilities

that result in increases in equity, other than those relating to contributions

from equity participants.

ii. Expenses are decreases in economic benefits during the accounting period

in the form of outflows or depletions of assets or incurrence of liabilities

that result in decreases in equity, other than those relating to distributions

to equity participants.

An item that meets the definition of an element should be recognized if:

i. It is probable that any future economic benefit associated with the item

will flow to or from the entity; and

ii. The item has a cost or value that can be measured with reliability.

Measurement is the process of determining the monetary amounts at which the elements

of the financial statements are to be recognized and carried in the balance sheet and

income statement. This involves the selection of the particular basis of measurement.

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The concept of capital maintenance:

I. The concept of capital maintenance is concerned with how an entity defines the

capital that it needs to maintain.

II. It provides the connection between the concepts of capital and the concepts of

profit because it provides the reference by which profit is measured only

inflows of assets in excess of amounts needed to maintain capital may be

regarded as profit and therefore as a return on capital.

III. Therefore, profit is the surplus amount that remains after expenses (including

capital maintenance adjustments, where appropriate) have been deducted from

income. If expenses exceed income the residual amount is a loss.

Figure: Conceptual framework of IFR

objectives

elements ; qualitativecharactaristics

recognition criteris ;financial statement vs.financial reporting ;

measurements

reporting earning , reporting findflow & lequidity ; financial

statement and other means offinancial reporting

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objectives

• Fundamentalselements ; qualitative

charactaristics

• operational

recognition criteris ;financial statement vs.financial reporting ;

measurements

• Display

reporting earning , reporting findflow & lequidity ; financial

statement and other means offinancial reporting

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• Fundamentals

• operational

• Display

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CHAPTER 3LITERATURE REVIEWTHIS CHAPTER WILL ENTAIL THE THINGS GIVEN BELLOW:

A brief history of IFRS emergence and its acceptance over the world as internationalaccounting standard

Why adoption of IFRS is required in the era of globalization? Positive impact of IFRS adoption through BAS in Bangladesh IFRS and IAS first time adoption track in Bangladesh A theoretical analysis of all IAS based on IAS adoption practice in Bangladesh

pharmaceutical firm

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pharmaceutical firm

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pharmaceutical firm

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3.0. History of IFRS and BFRS and movement of both standardsevolving overtime:

Now a day IASB issues all IFRS and exert inconsistent effort on development of IFRS to

make it more flexible, understandable, easily applicable and universally acceptable. But

before the inception of IASB the IASC initiate the first effort in standard development

field for the best accountancy. IASC is a body established in 1973 through an

agreement made by professional accountancy bodies from Australia, Canada, France,

Germany, Japan, Mexico, the Netherlands, the United Kingdom and Ireland, and the

United States of America.

Up to 2000, the IASC’s rules were described as “International Accounting Standards”

(IAS).

In 1997 after nearly 25 years of glorious attainments; IASC realized that to continue a

smooth development process in IAS, it must find out a way to make bridge between

national accounting standards and practices and high-quality global accounting standards.

In late 1997 IASC formed a Strategy Working Party that published a discussion paper in

December 1998 and final recommendations in November 1999. The IASC Board

approved the proposal by December 1999, and the IASC member bodies did the same in

May 2000. The new standards-setting body was named as International Accounting

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Standards Board (IASB) and it has been performing the rule-making function from April

2001.

Major helping bodies operating as a non-separable part of IASB reporting and

development structure contain- IASB, IASC Foundation, International Financial

Reporting Interpretations Committee (IFRIC), previously Standing Interpretations

Committee, SIC under IASC), Standards Advisory Council (SAC) and Working Groups.

IASB has good finance for development, good freedom in making decision and good

forum of professional to lead its operation. So this body is one of the successfully

operating bodies formed by IASC in 2001.

The IASB describes its rules under the new tag “International Financial Reporting

Standards (IFRS), though it honors the prior rules (IAS) issued by the old standard-setter

(IASC).

In order to achieve objective like – setting an accounting system which enhance

comparability , consistency , reduces accounting conflict ( rising due to increasing

complexity for extensive globalization) and ensure uniqueness -- the accounting

profession developed the solutions like: the American solution GAAP or the European

solution (British solution to be read) IAS/IFRS. On the backdrop of getting a single set of

international accounting standards (since October 2002, the IASB and FASB have been

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working thoroughly toward convergence of IFRS and U.S. GAAP), IFRS is rapidly

gaining acceptance as over 100 countries; have recently moved to IFRS reporting or

decided to require the use of these standards in the near future and even the U.S.

Between 2005 and 2006, the number of foreign private issuers filing with the SEC using

IFRS jumped from a handful to 110, and the SEC expects the number to continue to

increase (IASB report; 2005).In February 2006, SEC Chairman Christopher Cox

reaffirmed the SEC’s commitment to achieving one set of high quality, globally accepted

accounting standards and opened the possibility that U.S. financial statements could be

prepared using IFRS or U.S. GAAP.

Within few year after the formation of new standard setting body ( IASB), the SEC

announced its support of a memorandum of understanding named “the Norwalk

Agreement”; done between the Financial Accounting Standards Board (FASB) and the

International Accounting Standards Board( IASB).

In between 2005 and 2006, the number of foreign private issuers filing with the SEC

using IFRS jumped from a few number to 110. Thus SEC predicts the increasing number

of adoption of IFRS in future. .In February 2006, SEC Chairman Christopher Cox unveils

the possibility that U.S. financial statements could be prepared using IFRS or U.S.

GAAP. In 2007, the SEC allows foreign private issuer (PIs) to prepare financial

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statements in accordance with IFRS as issued by the IASB without any reconciliation to

GAAP. SEC timeline (Baitter; 2007) is given bellow for further clarification---

Figure: 1.1

EU requires publicly held companies to prepare financial statement, report and discloser

based on the IFRS /IAS by January 1; 2005. Countries with prominent capital market like

-Australia, Hong Kong, Singapore and South Africa decided to adopt and has already

adopt accounting system equivalent to IFRS/IAS. Even SEC allows any enlisted firm to

switch from GAAP to IFRS/IAS. Organization of Securities Commissions (IOSCO), the

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Figure: 1.1






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Figure: 1.1






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international organization of national securities regulators, has suggested its members to

permit foreign issuers to use IFRS for cross-border securities offerings and listings. IASB

has been indefatigable in promoting IFRS at a political level.

The FASB and the IASB say they will revise the Norwalk Agreement to create a one set

of accounting standards from which all significant capital markets would be able to

operate by 2013.

IASs have become an essential part of the legal framework of Bangladesh from 1997 by

insertion of section 12(2) into the Securities and Exchange Rules 1987. The ICAB has

been adopted 29 out of 34 IASs as Bangladesh Accounting Standards (BAS); which is

around 85% compliance with IFRS or IAS.

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3.1. What does IFRS adoption mean and what are the terminologies relatedwith adoption?. “Nobes and Zeff (2010)”, give a definition of IFRS adoption to mean the full-scale

voluntary use by a company of IFRS as issued by the IASB before such use become

compulsory or mandatory in its jurisdiction. By this definition, two forms of IFRS

adoption can be observed.

I. First, a voluntary application of the IASBs standards without any alteration of the

standards and

II. Second a mandatory adoption of IFRSs where legal provisions require

jurisdictions to apply IFRS as issued by the IASB to the latter.

Beyond these two types of IFRS adoption, other countries often use another form of

adoption. This form of adoption reminds us of the due process through which

International Accounting Standards are produced. The due process in setting International

Accounting Standards is that, constituents identify areas in financial reporting that needs

to be improved. Following this, the technical staff at the IASB develops a discussion

paper that issued to the public for comments over a limited period. They then design the

proposed standard into an Exposure Draft, which is showcased to the public for further

comments and public hearings before a substantive IFRSs can be pronounced. Notable

among countries that have adopted this due process are Australia, Canada and New

Zealand. In this approach, adopting countries will first translate IFRS into their local

standards following the due process of the IASB. Whether by content or by process, IFRS

adoption refers to the complete replacement of IFRSs with any other standard a country

might have.

Let us for a moment look at the terminology, which the IASB uses when referring the

IFRS adoption. The board has on several occasions referred to different forms of IFRS

applications yet in fact meaning IFRS ‘’adoption’’. In their recent annual report, they

provide the state of IFRS adoption around the world as seen in the list below-

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Table: IFRS Application in Some developed countries. Source: IASB annual report 2011 pg (3)

This list suggests that the IASB has in many instances contradicted themselves when they speak

of IFRS adoption. Take China for example; can we say that they have adopted IFRSs? The

answer is “No” because the Chinese have their own national accounting standards. It is true that

Chinese National Accounting Standards are now closer to IFRSs than ever before. However, in

essence, China cannot claim to have adopted IFRS.

IFRS Adoption List as Provided by the IASBYear Country2012 G20: two thirds of G20 members now require the use of IFRSs

2011 Russia: announces intention to adopt IFRSs from 2012 IFRS for SMEs: nearly 80

jurisdictions have adopted the IFRS for SMEs, or announced plans to do so

2008 Malaysia and Mexico: announce intention to adopt IFRSs

2006 China: adopts accounting standards substantially in line with IFRSs, with goal of

full convergence

2005 Nearly 7000 Companies adopt IFRS in the European Union including South Africa

and Simultaneously switch over from national GAAP to IFRS for listed companies

2007 Bangladesh started to reform their national accounting standard in accordance with

IAS published by IFRS

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3.2. BAS Adoption of IFRS / IAS over the time being in Bangladesh:

Since Bangladesh is facing a rapid escalation in foreign trisection, increasing number of

multinational firm in domestic market and effect of globalization; adoption as well as

compliance with IAS is became prominent. Because most of the developed country now a day

exercising IAS

Here I want to represent a summary of total number of IAS rule that has been adopted by ICAB

and it equivalent BFRSs from the very beginning of the adoption to adoption that had been made

recently.

If someone carefully observe the adoption and compliance tack then they will surely realized that

most of the adoption is made in 2007and in near future our BAS will be more enriched and

appropriate with the full adoption or compliance with IAS. Besides that there is a treat of

abolishment of BAS by IAS.

International Accounting Standard Compliance and Adoption

IAS No. Title Status of adoption and

compliance by ICAB

Effective date as BAS

1 Presentation of

Financial Statements

Adopted 1st January 2007

2 Inventories Adopted 1st January 2007

7 Cash Flow Statements Adopted 1st January 1999

8 Accounting Policies,

Changes in Accounting

Estimates and Errors


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10 Events after the Balance

Sheet Date


11 Construction Contracts Adopted 1st January 1999

12 Income Taxes Adopted 1st January 1999

16 Property, Plant and

Equipment


17 Leases Adopted 1st January 2007

18 Revenue Adopted 1st January 2007

19 Employee Benefits Adopted 1st January 2004

20 Accounting for

Government Grants and

Disclosure

of Government

Assistance


21 The Effects of Changes

in Foreign Exchange

Rates


23 Borrowing Costs Adopted 1st January 2010

24 Related Party

Disclosures


26 Accounting and

Reporting by

Retirement Benefit


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Plans

27 Consolidated and

Separate Financial

Statements


28 Investments in

Associates


29 Financial Reporting in

Hyperinflationary

Economies

Not adopted –

inapplicable in

Bangladeshi context

----------------------

31 Interests in Joint

Ventures


32 Financial Instruments:

Presentation


33 Earnings per Share Adopted 1st January 2007

34 Interim Financial

Reporting


36 Impairment of Assets Adopted 1st January 2005

37 Provisions, Contingent

Liabilities and

Contingent

Assets


38 Intangible Assets Adopted 1st January 2005

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Recognition and

Measurement


40 Investment Property Adopted 1st January 2007

41 Agriculture Adopted 1st January 2007

Table: (Source) ICAB website, ICAB annual report 2011

There are some other IFRS adoption made in between 2007 – 2013; but most of these adoption

and compliance is made in 2013—

IFRS Adoption and Compliance

IFRS No. IFRS titles Status of adoption and

compliance by ICAB

Effective Date as BFRS

1 First time Adoption of

International Financial

Reporting

Standards


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2 Share Based Payment Adopted 1st January 2007

3 Business Combinations Adopted 1st January 2010

4 Insurance Contracts Adopted 1st January 2010

5 Non Current Assets held

for Sale and

Discontinued

Operations

Adopted

1st January 2007

6 Exploration for and

Evaluation of Mineral

Resources



Disclosures


8 Operating Segments Adopted 1st January 2013

9 Financial Instruments Not adopted---not

applicable in

Bangladeshi context

-------

10 Consolidated Financial

Statements


11 Joint Arrangements Adopted 1st January 2013

12 Disclosure of Interests

in Other Entities


13 Fair Value Adopted 1st January 2013

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Measurement

Table: (Source) ICAB website, ICAB annual report 2011

3.3. Positive Impact on the National Accounting Practice of Bangladesh Due to

Adoption of IFRS

In a developing country like Bangladesh, we can figure out the following prospects that may be

materialized by the adoption of IFRS:

1. The adoption may have some strong impact on the corporate sector. Agency problem

between management and shareholders can be substantially reduced through execution of

IFRS as increased transparency causes managers to act more in the interests of the

shareholders (see Watts, 1977; Watts and Zimmerman, 1986). The increased

transparency promised by IFRS also could cause a similar increase in the efficiency of

contracting between firms and lenders. The increased transparency and loss recognition

timeliness promised by IFRS could increase the efficiency of contracting in debt markets,

with potential gains to equity investors in terms of reduced cost of debt capital

.

2. The weakness of small investors is a long time established problem and undoubtedly it is

a big obstacle for the stock market development in Bangladesh. Small investors are less

likely than investment professionals to be able to anticipate financial statement

information from other sources. IFRS adoption could reduce the cost of investors of

processing financial information. Improving financial reporting quality allows the small

investors to compete better with professionals, and hence reduces the risk they are trading

with a better-informed professional (known as “adverse selection”).

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3. Another improvement of adopting IFRS to reduce information irregularity in the

corporate sector can arise due to its emphasis on fair value accounting (FVA). Most

economists argue that fair value incorporates more information into the financial

statements than historical costs. Though other conditions in Bangladesh are not favorable

for implementing FVA (like achieving observable market prices or independently

observable, accurate estimates of liquid market prices that cannot be materially

influenced by managers due to less perfect market liquidity), still FVA can make

financial statements more informative, with potential advantages to investors, and if

enforceable more useful for purposes of contracting with lenders, managers and other

parties (see Ball, Robin and Sadka (2006). IFRSs are instilled into FVA. Particularly as

listed (Ball 2005):

a) IFRS 2 requires share-based payments to be accounted at fair value;

b) IFRS 3 provides for minority interest to be recorded at fair value;

c) IAS 16 provides a fair value option for property, plant and equipment;

d) IAS 36 requires asset impairments (and impairment reversals) to fair value;

e) IAS 38 requires intangible asset impairments to fair value and some others;

f) IAS 39 requires fair value for financial instruments other than loans and

receivables that are not held for trading, securities held to maturity; and

qualifying hedges (which must be near-perfect to qualify); and

g) IAS 40 provides a fair value option for investment property.

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4. Apart from these, adoption of IFRS in Bangladesh can reduce accounting diversity thus

will encourage the foreigners for cross border investment which in turn may improve the

liquidity of the capital markets and enlarge firm’s investor base to improve risk-sharing

and lowers cost of capital (e.g. Merton, 1987).

5. Prevailing local GAAP is not enough to ensure proper disclosure quality and there are

ambiguities among numerous rules, guidelines and notifications that are often self-

contradictory and perplexing to one another. Mandatory adoption of IFRS will reduce

such vagueness and create more binding on the firms to perform their disclosure

responsibility (e.g., Ding et al, 2007; Baee Tan and Welker, 2008 evidence that IFRS are

more comprehensive than most local GAAP). Since the early 1980s, various bilateral and

multilateral agencies have been playing an active role in the diffusion of Western

accounting standards to the developing world (see Rahaman and Lawrance, 2001;

Neuetal., 2002). Bangladesh, as a country hugely dependent on foreign aid and also a

participant of globalization trend, has been facing the urgency of different global

community for adopting IASs/IFRSs to ensure accountability and transparency in

financial reporting.

Accounting profession is seeking to adopt all applicable IASs (see Institute of Cost and

Management Accountants of Bangladesh, 1999, p. 12) but such decision is continually driven by

institutional legitimization rather than careful appreciation of the differing contextual variables in

Bangladesh (see, Susela, 1999; Points and Cunningham, 1998). In fact, after a long period

without any involvement or interference with the practice of accounting, the government of

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Bangladesh, in response to the immense pressure by the international lending/donor agencies to

standardize financial reporting, has started lobbying the accounting profession to adopt all

applicable IASs/IFRSs for use in Bangladesh (ICMAB, 1999).

3.4. Problem Faced by Standard Setting Bodies of BAS During AdoptionProcess of IAS:

The general perception is: after the standards (BAS) are reviewed and adopted; that most of these

standards are carbon copies with the same numbers as the original IASs. (Miretal, 2005, p. 826)

Another problem lies on ambiguity of role and responsibility of the SEC and the ICAB. Once the

adoption process is over the SEC then has the responsibility, as delegated by the Government of

Bangladesh, to monitor compliance with these standards by listed companies. According to the

Sec 12 (2) of the Securities and Exchange Rules 1987, ‘the financial statements of an issuer of a

listed security shall be prepared in accordance with the requirements laid down in the Schedule

and the International Accounting Standards/IFRSs as adopted by the Institute of Chartered

Accountants of Bangladesh’. That is, all the responsibilities of IAS adoption process lie with the

ICAB. The SEC does not participate in the process though it is the top regulatory body in

Bangladesh for enforcement of IASs/IFRSs in the listed companies. Here it may be noted that the

US SEC has the authority to set accounting standards for companies, but always has delegated

the responsibility to the accounting profession, a strong and independent standards setting body

like FASB. Most importantly, the US SEC delegated only the responsibility, not the authority, to

set standards and if it does not agree with a particular standard issued by the private sector, it can

force a change in the standard (See Spiceland et al, 2004, p. 9). It is clear that, in Bangladesh,

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SEC lacks expertise to formulate standards which led them to delegate the responsibility to the

ICAB.

From a diagnostic review carried out in Bangladesh on accounting and auditing in January –

March 2003, the World Bank’s Report on the Observance of Standards and Codes (ROSC)

Bangladesh states that, the accounting and auditing practices in Bangladesh suffer from

institutional weaknesses in regulation, compliance, and enforcement of standards and rules. In

many cases, the preparation of financial statements and conduct of audits are not consistent with

IASs and international auditing practices

The ROSC (Report on the Observance of Standards and Codes (World Bank)) revealed the

necessity of enacting of “a new Financial Reporting Act and the repeal of the provisions on

accounting, auditing, and financial reporting in Companies Act 1994, Bank Companies Act

1991, Insurance Act 1938, and other related regulations.” This recommendation is appreciable

because such initiative may substantially eliminate all conflicting issues among the prevailing

regulations and pronouncements and undoubtedly, it will be easy to update accounting, auditing,

and financial reporting requirements from time to time by simply amending the single act for

financial reporting. The ROSC advocated that the proposed Financial Reporting Act should

focus on making legal arrangements to “fully adopt IAS/IFRS/ and ISA without modification

and ensure mandatory observance of these standards” (ROSC, 2003, p.11)

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3.5 Selected 9 Company’s Compliance with IAS on the Year 2013(ATheoretical Justification and Comparison):

Selected sample companies compliance with different IAS adopted BAS in case of preparing,

analyzing, presenting and reporting financial statements and practicing accounting policies and

procedures are justified and analyzed bellow under the title of different IAS adopted BAS. For

this purpose we will use 2013 scenario of all companies.

3.5.0 “IAS -1 Presentation of Financial Statement” Compliance

IAS -1 requirements Sample companies compliance

Preparation of Financial Statement such as –

1. a statement of financial position as at the

end of the period;

2. a statement of comprehensive income for

the period;

3. a statement of changes in equity for the

period;

4. a statement of cash flows for the period

5. Notes to the financial statement

Fully complied with this requirement

1. On year 2013 the companies prepare

statement of financial position

2. On the year 2013 it creates Statement of

comprehensive income

3. On the year 2013 the company create

statement of cash flow

4. Statement of change in capital is created

on the year 2013

5. Notes to the financial statement are also

disclosed fully by representing all element

included in above statements to clarify

them to general stockholders

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Financial statement should represent the reflection

of the principle going concern.

Prepared financial statements on a going concern

basis which are reflected in its long-term asset,

liabilities. There are no doubt about the

continuance of going concern because the

companies have facing a upward growth

consistently ; thus no discloser of uncertainty

about going-concern is not necessary in the year

2013

Additional discloser when necessary There was no major occurrence happened to give

additional discloser on the year 2013

Decision: So we can say that all sample companies are complying with IAS-1

3.5.1. “IAS -2 Inventories” Compliance


Inventories shall be measured at the lower of cost and

net realizable value

Yes; the companies comply with this requirement

and describe about it in notes with title inventory

on year 2013.

The cost of inventories on year 2013 comprises of

expenditure incurred in the normal course of

business in bringing the inventories to their

present location and condition. Net realizable

value is based on estimated selling price less any

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further costs expected to be incurred to make the

sale

The cost of inventories shall be assigned by ether

using the first-in, first-out (FIFO) or using

weighted average cost formula.

Cost is determined on weighted average cost

basis in year 2013 in all selected companies.

Decision : The companies conform with IAS-2 fully

3.5.2. “IAS-7 Statement of Cash Flow” Compliance


The statement of cash flows shall report cash

flows during the period classified by operating,

investing and financing activities.

The company maintains this requirement. the

cash flow statement of year 2013( common

structure to all sample companies is given

bellow ( figure 6.0.3 yellow shaded areas)

Follow ether direct method or indirect method The companies used direct cost method because

it report major classes of gross cash receipts and

gross cash payments in case of calculation of CF

from operating activities.

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(7out of 9 sample companies name ) Pharmaceuticals Limited

Statement of Cash Flow

For the year ended 31 December 2013

Particulars Taka

Cash Flows from Operating Activities :

Receipts from Customers and Others

Payments to Suppliers and Employees

Cash Generated from Operations

Interest Paid

Interest Received

Income Tax Paid

Net Cash Generated from Operating Activities

Cash Flows from Investing Activities :

Acquisition of Property, Plant and Equipment

Intangible Assets

Disposal of Property, Plant and Equipment

Short Term Investment

Net Cash Used in Investing Activities

Cash Flows from Financing Activities :

Net Decrease in Long Term Borrowings

Net Increase / (Decrease) in Short Term Borrowings

Dividend Paid

Net Cash Generated from Financing Activities

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Increase in Cash and Cash Equivalents

Cash and Cash Equivalents at Beginning of Year

Cash and Cash Equivalents at End of Year

Figure: (Cash flow statement structure of all selected companies)

Decision: The Companies complies with IAS-7 by preparing cash flow statement in

accordance with direct method.

3.5.3. IAS 12 Income Taxes- Compliance


Income tax expense comprises of current and

deferred tax.

1. Current tax liabilities/assets for the current

and prior periods shall be calculated at the

amount expected to be paid to the taxation

authorities; using the tax rates/tax laws that

have been enacted or substantively enacted

by the end of the reporting period

2. Deferred tax assets and liabilities shall be

measured at the tax rates that are expected

to apply to the period when the asset is

The company comply with the tax related rules –

IAS 12 in 2013 by-

1. Current tax expense has been recognized on

the basis of the Finance Act 2012 and

Income Tax Ordinance 1984.” The Finance

act and income tax ordinance 1984 are just

intended to determine tax rate but basis of

calculating income tax return is based on

IAS -12.

2. The company has recognized deferred tax

using balance sheet method in compliance

with the provisions of IAS 12: Income

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realized or the liability is settled, based on

tax rates (and tax laws) that have been

enacted or substantively enacted by the end

of the reporting period

Taxes.

The company’s policy of recognition of

deferred tax assets/ liabilities is based on

temporary differences between the

carrying amount (Book value) of assets and

liabilities for financial reporting purpose

and its tax base

Decision: the company fulfills IAS-12 with full compliance with every knock and

corner of the rules in case of recognizing and calculating income tax.

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3.5.4“IAS 16 - Property, Plant and Equipment” Compliance

IAS-16 requirements Sample companies compliance

Property, plant and equipment will be treated astangible items that will fulfill these requirementsgiven bellow :1. are held for use in the production or supplyof goods or services, for rental to others, orfor administrative purposes; and2. are expected to be used during more thanone period

They treat these common asset as tangible which

fulfill the 2 conditions for tangible asset given on

adjacent box—

Building and Other Construction

Plant and Machinery

Furniture & Fixtures

Transport & Vehicle

Office Equipment

Measurement after recognition-

1. Cost model: After recognition as an asset,

an item of property, plant and equipment

shall be carried at its cost less any

accumulated depreciation and any

accumulated impairment losses.

2. The revaluation model: After recognition

as an asset; whose fair value can be

measured reliably shall be carried at a

1. PP&E has been stated at cost or revalued

amount less accumulated depreciation in

compliance with the requirements of IAS

16

2. Not maintained the second requirement in

case of recognizing any of tangible assets

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revalued amount; being its fair value at the

date of the revaluation less any subsequent

accumulated depreciation and subsequent

accumulated impairment losses

Depreciation is the systematic allocation of the

depreciable amount of an asset over its useful life.

Depreciable amount is the cost of an asset, or other

amount substituted for cost, less its residual value

Depreciation is presented to amortize the cost of

the assets after commissioning, over the period of

their expected useful lives, in compliance with the

provisions of IAS 16

Depreciation is provided at the rates on reducing

balance basis ; given bellow:

Building and Other Construction (2% to

10%)

Plant and Machinery (5% to 15%)

Furniture & Fixtures 10%

Transport & Vehicle 20%

Office Equipment 10% -15%

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Decision: all of the 10 companies completely maintain the provision of IAS 16

3.5.5. The IAS Rule that the Companies Skips in Between IAS1 – IAS17

IAS Rules Sample companies compliance

IAS 8 “Accounting Policies, Changes in

Accounting Estimates and Errors”

No change in accounting principle is made in

year 2013 so this provision is overlooked by

the companies

IAS 10 Events after the Reporting Period This part is mainly for auditors to follow; so

the companies skip this provision

Decision : all of the 10 companies doesn’t comply with IAS 7 and 10 willy-nilly

3.5.6. IAS 17 Leases compliance as leaser


Provision for two types of lease from the

perspective of leasors-

1. Operating lease:

Lessor shall present assets subject to

operating leases in their statements of

1. No operating lease is continuing within this

company; so the company doesn’t

obligated to follow the part of this

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financial position according to the nature

of the asset (consider whether asset is fixed

or current).

The depreciation policy for depreciable

leased assets shall be consistent with the

lessor’s normal depreciation policy for

similar assets, and depreciation shall be

calculated in accordance with IAS 16 and

IAS 38.

Lease income from operating leases shall

be recognized in income on a straight-line

basis over the lease term

2. Finance lease: Lessors shall recognize

assets held under a finance lease in their

statements of financial position and present

them as a receivable at an amount equal to

the net investment in the lease

Costs incurred by manufacturer or dealer

lessors in connection with negotiating and

arranging a lease shall be recognized as an

expense when the selling profit is

provision

2. In compliance with the IAS 17: Leases,

cost of assets acquired under finance lease

along with related obligation has been

accounted for as assets and liabilities

respectively of the companies, and the

interest element has been charged as

expenses

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recognized

Decision: Most of the companies maintain this IAS provision partially by only

exercising it in accounting treatments on financial lease. Some of the company

totally skip this provision due to absence of any leasing activities/ transactions

3.5.7. IAS 18 “revenue” Compliance Justification


This Standard shall be applied in accounting for

revenue arising from the following transactions

and events-

1. the sale of goods: Revenue from the sale

of goods shall be recognized when all the

following conditions have been fulfilled-

the entity has transferred to the

buyer

the amount of revenue can be

measured reliably;

the economic benefits associated

with the transaction will flow to

Respective compliance of the sample companies

in different requirements of this IAS provisions

1. Revenue is recognized upon invoicing the

customers for goods sold and delivered.

Sales are accounted for net of value added

tax, trade discount and allowances.

In case of cash delivery, revenue is

recognized when delivery is made and

cash is received by the Companies

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the entity

costs incurred in respect of the

transaction can be measured

reliably

2. The rendering of services

3. The use by others of entity assets yielding

interest, royalties and dividend

2. Revenue from services given is

documented in income statement in

proportion to the stage of completion of

the transaction at the reporting date.

3. When the Group acts as an agent, the

revenue is recognized in the net amount of

commission earned by the Group.

Dividend income is recognized when right

to receive payment of such dividend is

recognized

Common costs and facilities are allocated

to entities based on common cost sharing

agreement and pursued constantly.

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Cash flows from operating activities have

been presented under direct method

Decision: all the companies under consideration consistently maintain this IAS-18

since the year 2002.

Findings:

Sales of good is recorded as fair value

Service revenue is recognized as per as the proportion of whole service completed

Dividend and commission is recognized when those are earned

Cash flow from operating activities are recorded at direct method rather than

indirect method

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3.5.8. IAS 19-“Employee Benefits” Compliance

IAS 19 requirement Sample companies compliance

Short-term employee benefits requirements:

Short-term employee benefits are

employee benefits that are need to be

settled within twelve months after the

end of the period in which the employees

render the related service.

Company should recognize the

undiscounted amount of short-term

employee benefits expected to be paid in

exchange for that service either :

(a) as a liability (accrued expense),

after subtracting any amount

already paid

If the amount paid exceeds the

undiscounted amount of the

benefits, an entity shall recognize

that excess amount as prepaid

expense

Or

Short-term employee benefits include

salaries, bonuses, leave encashment, etc.

; which are exhausted within 12 month

in the year 2013

Obligations for such benefits are

measured on an undiscounted basis and

are expensed as the related service is

provided in the year 2013

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(b) as an expense, unless another

Standard( such as IAS2 –

inventory and IAS16-PP&E)

requires or permits the insertion

of the benefits in the cost of an

asset

Post-employment benefits requirement :

Post-employment benefits are employee

benefits (other than termination benefits)

which are payable after the completion

of employment.

Post-employment benefits: defined

contribution plans:

(a) Under defined contribution plans:

the entity’s legal or constructive

obligation is limited to the amount

that it agrees to contribute to the fund

Post employment benefits are provident

fund, gratuity, life insurance policy etc

are maintained by the companies for

their employees

(a) Defined benefit plan runs within the

companies

The companies have a registered

provident fund scheme (Defined

Contribution Plan) for employees of the

company eligible to be members of the

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(b) Actuarial risk (that benefits will be

less than expected) and investment

risk (that assets invested will be

insufficient to meet expected

benefits) fall on the employee.

fund in agreement with the rules of the

provident fund constituted under an

irrevocable trust. All permanent

employees of those companies contribute

10% of their basic salary to the provident

fund and the company also makes equal

contribution.

Employees of these companies are

entitled to gratuity (Defined Benefit

Plans) benefit after completion of

minimum five years of service in the

company.

(b) no valuation was done to quantify

actuarial liabilities as per the IAS 19

Decisions: the sample companies follow IAS 19 partially in case some defined benefit

and terminal benefits plan but fully follow in case of short term benefit plans

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3.5.9. IAS 20 Accounting for Government Grants and Disclosure of

Government Assistance Compliance:

These companies are non-government entity and rarely got assistance from the part of

government. For this reason the companies doesn’t comply with IAS-20. Other reason for which

the companies fight shy this IAS provisions are given bellow –

1. No government grants ;assistance by government in the form of transfers of resources

to an entity ; are made in form of asset / income in the year 2013 among these

companies

2. No government assistance ; action taken by government designed to provide an

economic benefit specific to an entity ; are made in the year 2013 among these

companies

3.5.10. IAS 21The Affects of Changes in Foreign Exchange Rates


Reporting foreign currency transactions in the

functional currency requirements –

At the end of each reporting period:

1. foreign currency monetary items shall

be translated using the closing rate;

All the companies deals with functional

currencies in the following manner----

1. Foreign currency transactions are

accounted for at exchange rate

existing on the date of transaction.

Monetary assets and liabilities

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2. non-monetary items that are measured

in terms of historical cost in a foreign

currency shall be translated using the

exchange rate at the date of the

transaction; and

3. non-monetary items that are measured

at fair value in a foreign currency shall

be translated using the exchange rates

at the date when the fair value was

determined

denominated in foreign currencies at

reporting date are translated at rates

;existing on balance sheet date

2. Remain unmet by most of the

companies due to absence of non-

monetary transaction in foreign

currency

3. Remain unmet by most of the

companies due to absence of non-

monetary transaction in foreign

currency

Decision: All of the elected companies follow IAS-21 requirements in case of dealing

with foreign currency except non- monetary trisection made on foreign currency.

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3.5.11. IAS 23 Borrowing Costs- compliance

IAS 23requirements Sample companies compliances

Recognition:

1. An entity shall capitalize borrowing costs that

are directly attributable to the acquisition,

construction or production of a qualifying

asset as part of the cost of that asset.

2. An entity shall recognize other borrowing

costs as an expense in the period of incurred

3. Entity shall begin capitalizing borrowing

costs as part of the cost of a qualifying asset

on the commencement date.

The commencement date for capitalization is

the date when the entity first meets all of the

following conditions:

(a) it incurs expenditures for the asset;

1. In the year 2013 companies capitalizes

borrowing cost; incurred in establishing new

projects

2. Borrowing Cost Borrowing costs are

recognized as expenses in the period in which

they are incurred unless capitalization of such

is allowed under IAS 23: Borrowing Costs.

3. Charges the cost (interest on loan) to revenue

account as financial expenses after

commencement of the commercial operation

of new projects.

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(b) it incurs borrowing costs; and

(c) it undertakes activities that are necessary to

prepare the asset for its intended use or sale

Decision: companies whose are intended to take loan for establishing new project

obligate to this provision by capitalizing cost related to borrowing until the project is on

the operation. Companies; taking loan for other purpose rather than acquisition,

construction or production of a qualifying asset are also comply with this provision by

recording borrowing cost as financial expense

3.5.12. IAS 24 Related Party Disclosures- compliance

IAS 24 requirements Sample companies compliance

Disclose management personnel compensation in

total and for each of the following categories:

1. short-term employee benefits;

2. post-employment benefits;

3. other long-term benefits;

4. termination benefits; and

5. share-based payment

In 2013 all the companies disclose fully about –

1. salaries, bonuses, leave encashment

2. insurance premiums, healthcare premiums

,deferred-compensation arrangements,

pension and gratuity

3. long service leave

4. Nil

5. Nil

Discloser about related party trisections Sufficient discloser has been made in the year 2013

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about transactions made among parent; entities with

joint control or significant; subsidiaries; associates;

joint ventures in which the entity is a venture; and

other related parties. Decisions: All the companies comply with IAS 24 by giving sufficient discloser for all

the trisection relating with related parties.

3.5.13. IAS 26 “Accounting and Reporting by Retirement Benefit Plans”-

Compliance

IAS 26 is somehow correlated with IAS 16 and helps each other in case of reporting, recognizing

and setting structure of employee post- employment benefits. The elected pharmaceutical

companies fully company with both IAS provision in case of determining post-employment

benefits such as pension fund, gratuity payment, life insurance scheme benefits and differed

salary payments. The aspect based on which we are sure about the companies’ compliance with

IAS 26 are –

1. The companies recognize retirement benefit at fair value which is one of the

requirement of IAS 26

2. In case of marketable securities ; the companies carried them at their fair market value

3. financial statements of a retirement benefit plan for ether defined and undefined

contains all of the following information in the year 2013 ; which are recommended by

IAS 26—

A statement of changes in net assets available for benefits

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A summary of significant accounting policies

An interpretation of the plan and the effect of any changes in the plan during

the period

3.5.14. IAS 27 “Consolidated and Separate Financial Statements”-Compliance

Verification

The companies whose are operating in a parent-subsidiary relationship are intend to consolidate

their financial statement as like as they are operating as a single company but with a different

entity. In the sample size; there some companies who are operate in several industries such as

Beximco and create consolidated –

Statement of financial position

Statement of comprehensive income

Statement of change in cash flows

Notes to the Financial statements and by this those companies reflect the some

requirements of IAS 27 such as –

1. reflection of relationship of the parent –subsidiary ;

2. consolidation of financial statements must present financial information about the

group as that of a single economic entity

The companies in their financial statement position represent about minority shareholder’s

interest under non-controlling interest in the year 2013 in case of when the companies doesn’t

fully take over their subsidiaries. Thus fulfill other requirements of IAS 27 –

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1. Recording non-controlling interest

2. Showing change in ownership interest

Decision: so we can that the companies are fully docile in case of complying IAS 27.

3.5.15. IAS 28 Investments in Associates –Compliance

This IAS provision is applied only to treat investments that the 10 companies made in associated

parties and joint venture and the companies has a significant investment in associates through

purchasing about 20-50% of common outstanding share of associates.

In such types of investment there is no necessity to prepare consolidated financial statements.

Equity method should be adopted by the entity and initial investment should be recorded at cost

and this original cost need to be adjusted in later period for the contrition to gain/ loss earned by

associates.

The companies in 2013 has incurred different investments that they made in associated

companies dealing with other product line or divisions and they record and treat those incurred

investment on the light of IAS 28. The reason for which we are pretty sure about their

compliance are-

1. Associates are determined based on percentage of ownership scale of 20-50%

2. All investment made to Associates and joint ventures are accounted for using the equity

method

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3. Investment made to associates are recorded at the total cost incurred while making share

purchase of associates and investments are adjusted each period for pro-portion of gain/

loss from associates in the manner given bellow –

Demo:

A company purchase 22% of share of B Company and incurs a cost of 20000. B company

record a net income and dividend at that year of about 2000 take and 500 taka

successively. A company will record those in accordance with equity method because A

has significant influence over B.

Then A company will record acquisition of common stock as bellow –

D

e

c

i

s

i

o

n

s

: So we can say that all of the companies follow IAS 28 in case of accounting

investment in associates.

Particulars Taka Taka

Investment made in B’s stock ----Dr

Cash -------------------------Cr

(To record share purchase)

20000

20000

Investment made in B’s Stock -----Dr

Income from B -----------------Cr

(To record share of net income from B)

440 440

Cash -----------------------------------Dr

Investment in B’s stock ------Cr

(To record share of dividend)

110 110

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3.5.16. IAS 29 Financial Reporting in Hyperinflationary Economies –

Compliance

This is IAS standard is incompatible in Bangladesh perspective because it belong out of the

boundary of hyperinflation because it face a reducing inflation rates rate overtime and has good

pricing index.

The reasons why Bangladesh industries are not obligate to follow IAS 29 is the mismatch

between Bangladesh economic scenario and IAS prescribed hyperinflationary economic

characteristics.

Characteristics Hyperinflationary economies described by IAS 29 are as follow-

1. The general population prefers to keep its wealth in non-monetary assets or in a relatively

stable foreign currency. Amounts of local currency held are immediately invested to

maintain purchasing power;

2. The general population regards monetary amounts not in terms of the local currency but

in terms of a relatively stable foreign currency. Prices may be quoted in that currency;

3. Sales and purchases on credit take place at prices that compensate for the expected loss of

purchasing power during the credit period, even if the period is short;

4. Interest rates, wages and prices are linked to a price index; and

5. The cumulative inflation rate over three years is approaching, or exceeds, 100%.

Characteristics of Bangladesh economic scenario-

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1. General people have a tendency of expending money rather than saving money. Only

11.23% of total population has intention to save money in term different non-monetary

forms

2. Most of the product price fabricated inside Bangladesh has price tag written in taka.

3. Sale or purchase is made mostly on cash and if made in credit then the price and payment

condition will be fixed by the both parties or other regulatory bodies.

4. Interest is determined by market demand or govt. Wage is determined by working

performance and price is determined based on quality and service.

5. Cumulative inflating rate is 44.5% for successive three year (2011, 2012, and 2013)

which is less than 100%.

Decision: since Bangladesh is a developing country and doesn’t belong to

hyperinflationary economy; so the selected companies doesn’t adopt this IAS provision

3.5.17. IAS 31 Interests in Joint Ventures- Compliance

Since any of the selected companies has no percentage of ownership interest in othercompanies in between 20-50%; there is no existence of joint-venture as well as no interestrelated to investment made in joint venture. So the companies are not compelled to followIAS 31 provision.The reason; proving a strong evidence against not complying with IAS 31; are givenbellow—

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The reason for which the companies doesn’t follow IAS 31 in year 2013

The companies has no joint venture assets, liabilities, income and expenses whichare need are the main concern of the IAS 31 There are no jointly controlled operational are run by those companies. No jointly controlled asset or shared facility are notified in the discloser of financialstatement in the year 2013 All the establishment of a corporation, partnership or other entity has no jointventure interest All the financial statement are prepared in a consolidated manner ( used in parent-subsidiary relationship) rather than using proportionate consolidation method orequity method ( to record investments; change in equity , income , expense made togain significant control over the investee) Since no joint venture relation exist among those companies; the transactionbetween venture and joint venture are absurd here. Even any significant transfer ,sale and purchase of assets has not been notified in2013 annual report in between companies with strategic and informal relationship Decision: the industry completely bypasses the IAS 31 provision due to absence of joint-

venture relation within the alignment of the industry.

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3.5.18. IAS 32 Financial Instruments: Presentation-Compliance

IAS 32 requirements Sample companies compliance

Financial instrument must include assets such as

1. cash/ cash equivalent ,

2. Term deposit

3. Trade receivable

4. equity instrument of another entity ( as

investment )

5. contractual right to receive cash or another

financial asset from another entity or to

exchange financial assets or financial

liabilities with another entity under conditions

that are potentially favorable to the entity

In 2013 ; asset as a financial instrument contains

the following items

1. cash and cash equivalents

2. term deposit

3. trade receivables,

4. investments in shares

5. No such types of item are disclosed in

financial statement

Financial instrument must include the following

liabilities-

1. contractual obligation

2. a contract that will or may be settled in the

entity’s own equity instruments

In the year 2013 the companies report the items ;

meeting with following two categories; as

follow-

1. trade payable

2. interest bearing borrowing

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Financial instrument must include the following

equity elements such as –

1. Share capital

2. All types of capital reserve

In the year 2013 the companies report share

capital, revaluation reserve, general reserve,

retained earnings etc under equity section of

balance sheet.

Decision: The Company fully discloses all financial instruments according to the

guidance given by IAS 31 rule.

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CHAPTER 4METHODOLOGYTHIS CHAPTER WILL COVER:

The method through which we will collect , analyze , shot , and arrange data forgetting a good research outcome

We also give a gist of what the topic on which we will conduct our research in laterperiod

The sample size of the interested subject to conduct research will also bedetermined in this chapter

The name of the pharmaceutical firms ; that we chose as our sample; are mentionat the end of this chapter

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4.0. Methodology:

Reports are prepared using various data and in processing the data various methods are used. The

basic method used in analyzing financial reporting disclosures is to scrutinize the Annual

Reports of the non-life insurance companies using checklists.

4.1 Data Collection and Analysis Procedures:

In Bangladesh many pharmaceutical companies are non-listed with the SEC and therefore their

shares are not traded in the DSE and CSE. Since they are non-listed companies, it is not expected

that those companies will prepared their Annual Reports on a regular basis, as well as they will

prepare it at all. For this reason, the listed companies have been used as the basis to work on.

In total there are 46 pharmaceutical firms of listed and non-listed category. Among these 46 are

listed companies. I chose 10 leading firm among those 46 listed firms as the sample of this study

and collect annual report of those selected companies respective annual reports ; published at the

end of the year 2012-2013. All of the Annual Reports are collected from the published Annual

Reports found in the pharmaceutical company’s websites. Some information has been collected

from the Journal of published by the Bangladesh Pharmaceutical Society (BPS).

I have prepared a detailed checklist and collected the required data from the Annual Reports of

the companies. The checklist has been filled up with the required data from those reports. After

collecting different field of data, I have calculated the qualitative and quantitative data based on

predetermined analysis tools used to analyze whether those companies are complying with IAS

by honoring BAS. Most of the relevant are presented in different graphical form since graphs

reflect the data more continently and vividly. Then I compared the companies with its own

reporting disclosures, other companies as well and IAS/ BAS standard to trace the area of

70 | P a g e

compliance and noncompliance of IAS in the entire industry. The number of disclosure made by

the pharmaceutical companies in the industry is compared with the other companies in the same

industry. Ultimate goal of all the effort is to conduct the inter industry analysis to justify

compliance of IAS /BAS in industry accounting practice.

4.2 Subject Matter of the Study

The subject matter of the study is about to justify whether firms operating in Bangladesh

pharmaceutical industry (belongs to life science category of comical industry; contributing 35 %

to this broader industry) comply with IAS in their accounting practice or not; if doesn’t comply

then provide explanation against non-compliance with IAS.

4.3 Sample Size of the Study:


listed companies. I chose 9 leading firm among those 46 listed firms as the sample of this study.

Sample size16%

Sample Size for the Analysis

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Total DSE and CSEenlisted firms

84%

Sample Size for the Analysis

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Total DSE and CSEenlisted firms

84%

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4.4. The Pharmaceutical Companies that We Chose to Conduct

Study on Compliance of IAS in Bangladesh Perspective

Since the pharmaceutical industry is prospering day by day and its area of operation expanding

across national boundaries; firm operating within it will face huge complexity in accounting

practice. As most of the countries are now adopting IAS as their accounting standards; the

domestic firm will face difficulty in reporting transaction once for Bangladesh perspective

(BFRS) and once for foreign countries perspective (IAS adopted or compliance BAS). To

resolve these hassle (difficulty in comparability and consistency); now a day most of the firm

adopt IAS besides using BAS. The pace at which industries in Bangladesh are adopting and

complying with IAS indirectly means that “BAS will be engulfed by IAS in near future.

The pharmaceutical companies; that we chose for the study; are all the leading firms in the

industry. The sample size of this study is 9 (that mean I will work on 10 top pharmaceutical

companies as a representative of comical industry (a broader industry)). So the name of 10

sample companies are-

1. Square Pharmaceuticals

2. Incepta Pharmaceuticals

3. Beximco Pharmaceuticals

4. Sun Pharmaceutical (Bangladesh) Ltd

5. ACI Ltd

6. Popular Pharmaceuticals Ltd.

Delta Pharma Ltd

7. IBN SINA Pharmaceutical Industry Ltd.

(IPI)

8. Radiant Pharmaceuticals Ltd

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5. ACI Ltd


Delta Pharma Ltd


(IPI)


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5. ACI Ltd


Delta Pharma Ltd


(IPI)


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CHAPTER 5INDUSTRY RELATED KNOWHOWTHIS CHAPTER WILL COVER:

Pharmaceutical industries knowhow in global perspective Major functions and operation of pharmaceutical industry over the world Pharmaceutical industry growth, importance and contribution in macro perspective Global governing authorities who regulate the action of multinational pharmaceutical

firms Introducing Bangladesh pharmaceutical foot steps toward growth , domestic sufficiency

(in drugs ) and GDP contribution Little knowhow about Bangladesh drugs regulatory authorities Note down major DSE and CSE enlisted firms; playing good in this industry

73 | P a g e

5.0. Introducing with pharmaceutical industry in both global anddomestic prospect

Before proceeding into the depth of the study we should know better about the subject matter andall of its related aspect to find and go through a smooth, accurate and clear-cut ways ofconducting study on this industry. Because in every aspect we first justify an objects externaloutlook then justify the internal aspect. So without knowing the industry; conducting study overthe internal aspect of the industry will be nothing but spending effort and time; which goes intovain.

5.1. Pharmaceutical industry firms, its growth, importance andcontribution in economic growth in the global perspective

The global pharmaceutical market is highly aggressive and is full of entry barriers such as strict

regulations, high R& D cost and time-consuming in case of clinical trials. Besides, high research

and development costs, lengthy clinical trial processes, expiring patents and difficulty in gaining

product authorization from the appropriate regulatory bodies all directly mean that companies

must produce blockbuster drugs to sustain its position in the market. To ensure high growth in

the leading emerging markets; spending on generic drugs is required at first, which will

contribute to the increase in the share of generic spending. Branded products accounted for

nearly two-thirds of global pharmaceutical spending in 2011. However, as patents expire in

developed markets, that share is expected to decline. The growth is coming mainly from market

expansion in the leading emerging countries and from generics.

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The Top 10 best pharmaceutical companies in 2014 according to global perspective:--

1. PFIZER

2. NOVARTIS

3. HOFFMANN- LA ROCHE

4. JOHNSON & JOHNSON

5. MERCK & CO

6. GLAXO SMITH KLINE

7. SANOFI

8. ELI LILLY

9. ASTRA ZENECA

10. ABBOTT LABORATORIES

At a glance; the highlights of the global pharmaceutical industry is given bellow –

The revenues from generics in 2016 are expected to reach USD 400 to 430 billion,

approximately 70% of which will be outside developed markets

Global brand spending is forecast to increase from USD 596 billion in 2011 to USD in

between 615 to 645 billion in 2016.

The highest growth in this market is being observed in Asia-Pacific

Leading emerging countries will account for 28% of global spending on pharmaceuticals

by 2015, compared to 12% in 2005

Over the next five years growth rate for emerging markets 15 % to 20%, and for matured

markets 6% to 10%

The global pharmaceutical market will reach nearly USD 1200 million by 2016. Global

generic spending is expected to increase from USD 242 billion to USD in between 400 to

430 billion by 2016, of which USD 224-244 billion of the increase is from low-cost

generics in emerging markets.

Blockbuster drugs (with a worth of $150 billion) to lose patents between 2010 and 2017.

Cardiovascular and CNS are the two largest market segments, constituting nearly 38% of

the global generic pharmaceutical market together.

Therapeutic segments such as Respiratory, CNS and Oncology are likely to witness

significantly high growth rates, attracting the attention of market participants.

segments such as Diabetes and Genitourinary/ hormonal drugs are expected to decline

by the 2017

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Primary activities of the industry are:

1. R&D: Research and development activity is one of the prominent activities to the firm

operating within the industry as well as a strong barrier to potential new entrant. R& D is

a collection of activities directed to development of any new product or process will

ensure the ultimate welfare of the society.

R& D is conducted through systematic process within this industry but model adopted to

conduct R& D may differ firm to firm. There two major and mostly exercised model of

R&D named –

a) In 1st model the primary purpose of conducting research is to developing new

and innovative product

b) In 2nd model R&D is conducted to develop new knowledge and idea which will

add new dimensions in currently exercising science and technologies which in

return will help in the effort of 1st model.

The ultimate goal of conducting R&D is to enhance ROI (return on investment) as well

as reducing cost per unit by reducing VC (variable cost) and FC (fixed cost)

Figure 1.3 (Research and Development)

Designing anddeveloping the

test

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R&D named –









implementstudy to justfyits efficiecy andimprovement

syntesizse andtheorise

Explorehypothesisand clarity

Designing anddeveloping the

test

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R&D named –









syntesizse andtheorise

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2. Drug Discovery and Development: There are some key point ; representing total effort of

drug discovery and development ;exerted in the global field of this industry; from the

very beginning to the recent time; is given bellow –

The research-based pharmaceutical industry currently spends over USD 135

billion on R&D per year

It takes 10–15 years to develop a medicine.

It costs an average of USD 1.38 billion to develop a single drug

In 2007–2011, the number of new chemical or biological entities launched on the

world market fell to 149 from 196 a decade earlier

In 2011, 5 of the 10 leading global R&D firms were pharmaceutical companies

By the end of 2011 Medicinal product reaches the market, on an average of 12-13

years will have elapsed since the first synthesis of the new active substance.

In 2011, 35 new pharmaceuticals were launched, out of more than 3,200

compounds in development

On average, only one to two of every 10,000 substances synthesized in

laboratories will successfully pass all stages of development required to become a

marketable medicine

The cost of researching and developing a new chemical or biological entity was

estimated at €1,172 million ($ 1,506 million in year 2011 dollars) in 2012

International Drug regulatory authority:

Regulatory authority is exercised either by publicly or privately formed bodies to exert control

over actions of an individual, legal entity or industry sector in such way that those action doesn’t

goes against majority interest or performed in a systematic, relevant and moral way.

Independent regulatory is free from any kind of interfere form ether private and government

operating controls bodies, entities or arms.

Dealing areas of regulatory entity is to assign regulation or enacting rule, principles or code of

conduct for the areas; dealt with by them. Whether a regulatory department is independent is

77 | P a g e

justifies based on existence of some attributes such as – high expertise, rule enforcement

capacity and political interference etc.

A regulatory body may be an executor branch of government, agencies performing audit or

statutory authority.

Some of international impendent drug regulatory authorities are—

I. International Conference on Harmonisation (ICH) for Registration of Pharmaceuticals for

Human Use

II. European Medicines Agency (EMEA)

III. Therapeutic Goods Administration (Australia) (TGA)

IV. U.S. Food and Drug Administration (FDA)

V. Medicines and Healthcare products Regulatory Agency (MHRA)

5.2. Pharmaceutical Industry According to Bangladesh Perspective

Pharmaceutical industry is one of the flourishing hi-tech industries which has high growth, high

future potential and growing market size; results in one of the most competitive industries in

Bangladesh. Although in year 2000; there were around 210 licensed drug manufacturing

companies; among them only 173 is still actively performing within this industry. Rest 37

companies were thrown out from the industry and lost their license due to manufacturing drug

product; which doesn’t comply with drug production rule, regulation, standards and convention.

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Human Use












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Human Use












78 | P a g e

By year 2013 about 300 licensed pharmaceutical firms are operating within the boundary of the

industry. The society is blessed with above 5600 licensed and banded drug products of this

industry. There were, however, 1,495 wholesale drug license holders and about 37,700 retail

drug license holders in Bangladesh.

Whenever “promulgation of Drug Control Ordinance – 1982/ NDP” is enacted and enforced; the

industry growth is became accelerated. Due to rapid development of this sector, the industry is

exporting medicines to global markets. This sector is fulfilling 97% of demand of local market.

The Industry companies also producing drugs such as- insulin, hormones, and anticancer drugs

that wasn’t produced in Bangladesh territory ever before; need to be imported from outside

countries. Recently, new industries have been established with high tech equipment and

professionals to enhance the strength of this sector.

Key points of “promulgation of Drug Control Ordinance – 1982”

1. To provide administrative and legislative support for ensuring quality of essential drugs

which are relevant to the national health need.

2. To reduce the price of medicine by ensuring the lowest competitive price.

3. To eliminate non-essential medicine from the market.

4. To promote production of local drug and raw materials.

5. To develop proper drug monitoring and information system to prevent wasteful misuse and

to ensure the proper utilization of the drugs.

6. To ensure GMP and qualified pharmacist in manufacturing companies.

7. To allot higher budget in research and development sector of this industry

8. To provide tax rebate or subsidy for new or fledging local firms

Consequence of applying Drug controlling ordinance-1982; most of the multinational companies

sold their company to local drug manufacturing companies. According to the website of drug

administration; the value of locally produced drug is increased 175 to 325 cores in between

1981-1985.

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Drug Regulatory Authorities in Bangladesh

Drug regulatory authorities in Bangladesh are –

1. The Directorate General of Drug Administration (DGDA): DGDA regulates all activities related

to import and export of raw materials, packaging materials, production, sale, pricing,

licensing, registration of all kinds of medicine.

2. The Pharmacy Council of Bangladesh (PCB): PCB was established under the Pharmacy

Ordinance in 1976 to control pharmaceutical industry practice in Bangladesh

Pharmaceutical companies of Bangladesh:




4. Opsonin Pharma

5. Renata

6. Eskayef Bangladesh

7. ACI Ltd

8. Acme Pharmaceutical

9. Aristopharma

10. Drug International

11. Sanofi-Aventis Bangladesh Ltd

12. GlaxoSmithKline(GSK) Bangladesh

Limited

13. Orion Pharma Ltd

14. Novo Nordisk Healthcare

Pharmaceuticals Limited

15. General Pharmaceuticals Ltd

16. Sandoz (generic pharmaceuticals

division of Novartis)

17. Popular Pharmaceuticals Ltd. (PPL)

18. Novartis (Bangladesh) Limited

19. IBN SINA Pharmaceutical Industry

Ltd. (IPI)

20. Nuvista Pharma Ltd

21. UniMed UniHealth Pharma Ltd


23. Globe Pharmaceuticals Ltd

24. BIOPHARMA Ltd

25. Roche Bangladesh Ltd


27. Pacific Pharmaceuticals Ltd

28. Jayson Pharmaceuticals Ltd

29. BEACON Pharmaceutical Limited

30. Social Marketing Company (SMC)

31. Orion Infusion Ltd

32. Kemiko Pharmaceuticals Ltd

33. NAVANA Pharmaceuticals Ltd

34. Delta Pharma Ltd

35. Servier Bangladesh

36. SOMATEC Pharmaceuticals Ltd

37. Rangs Pharmaceuticals Ltd

38. Libra Pharmaceuticals Ltd

Scenario, position and growth of the leading firms in past years 2007-2012:

Square is attaining first position in 2012 and Incepta Pharmaceuticals was the second best

competitor. Square’s sale in that particular year was 10.75 billion

Sanofi-Aventis ranked the top among the multinational pharmaceutical companies

Beximco Pharma's position in the country's top 10 pharmaceutical companies was the 3rd

in terms of sales. Its total sales were 4.2 billion in 2009 in taka.

4th position was taken by the ACME Laboratories and its sales were 2.64 billion (in taka)

in 2009.

Opsonin Pharma Ltd was ranked with 5th position based on local sales worth 2.61 billion

(in taka) in 2009.

Eskayef gain 6th position in 2009 by obtaining sale; worth of 2.52 billion (in taka).

8th position was taken by ACI; with a sale of 2.42 billion.

The sales of Aristopharma products were 2.23 billion thus ranked with 9th position

Drug Internationals were 2.13 billion(in taka) and was placed on 10th position in the

local pharmaceutical market

Growth of Bangladesh’s Pharmaceutical Market:

0

5

10

15

20

25

30

2007 2008








in 2009.


(in taka) in 2009.







2009 2010 2011 2012








in 2009.


(in taka) in 2009.







Series1

81 | P a g e

Contribution to national GDP:

GDP (Gross Domestic Product) is the total realized or actual monetary value of all goods, service

and ideas produced , served and generated within a national territory and a specific time period(

usually a year) ether by domestic or multinational firms (firms from outside countries operating

within the national boundary).

GDP is the main indicator of a country’s whole economic proficiency and its better future. The

major contribution in GDP is from the part of industry sector of a country and the value added by

those industries.

Pharmaceutical industry contribution is noteworthy in recent years. The GDP contribution of this

industry from 2005 to 2010 is given bellow-

Source: World Bank World Development Indicators.

Year Growth (%)

2007 15.8

2008 6.9

2009 16.8

2010 23.8

2011 23.6

2012 26.2

Year GDP ( In billion ;U.S dollar)

2005 60.3

2006 61.9

2007 68.4

2008 79.6

2009 89.4

2010 100.3

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Chapter 6ANALYSIS ON SELCTED HYPOTHIES TO JUSTIFY IASADOPTION AMONG COMPANIESOBJECTIVE OF THIS CHAPTER IS TO:

Develop the questions came in researcher’s mind relevant to IAS adoption

Creating relevant hypothesis based on relevant question about IAS adoption

Creating checklists , graph, calculation , and proving interpretation / illustration toback up the hypothesis that I will develop

Try best to conduct analysis in an understandable and friendly way ; so that anybodycan easily realize the martial that will provided inside this part

We will conduct analysis in this part as well as notes down the findings of analysis

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6.0. Brief Discussion about the Research Procedure and Road Map of the

Study:

Before proceeding into analysis we first develop hypothesis and throughout the research we will

try to proof the hypothesis that we presumed before. We may develop several hypotheses and

several methods as well; based on situation. Sometime we may use some statistical software to

find out relation among variable of the hypothesis. In the whole part of the research we may

adopt qualitative and quantitative research method based on situational demand.

Step of the research will go through a systematic and sequential way as follow –

1. Develop questions that comes in my mind about the issues related with IAS compliance

2. Develop hypothesis ; which is just a narrative form answer of the question according to

our perception

3. Selecting sample size based on which we will analyze the validity of our hypothesis

4. Determine dependent and independent variable

5. Arranging data into understandable form and presenting them in checklist

6. Reduce unnecessary data if any and then made reasoning on those data

7. Representing them in graphical or other visual format to made the results understandable

to general people

8. Framing the findings in theoretical format

9. Giving judgments and decision

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6.1. Topic of the Research

Now a day Bangladesh national accounting policies are reforming to made a bridge with IAS /

IFRS rules. Bangladesh accounting standard setting bodies prescribes each and every firm

operating within different industries to follow IAS or IFRS. So we are interested to conduct

research to justify the topic “international accounting standard compliance in pharmaceutical

industry- a case of Bangladesh” to get the idea about whether or not Bangladesh industries has

practicing renovated and reinforced national standards ( BAS)

6.2. The research on IAS Compliance in Bangladesh pharmaceutical

Industries

All the research phases will be describe in sequentially and organized order given in very

beginning of this chapter

6.3. Developing Questions Reflecting IAS Compliance

1. Did every pharmaceutical firm represent their financial statement in accordance with

IAS 1 prescribed manner?

2. Does Adoption of IAS 16 through using different deprivation method affect PPE

Turnover, NI and Tax Return of the companies?

3. Does IAS compliance in consistent manner and comparability of financial statementsamong selected companies have a positive relation?

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6.4. Develop Hypothesis (assumptions) for the Research

H1: the companies create and represent their financial statement in accordance with IAS1

H2: Adoption of IAS 16 through using different deprivation method somehow affect PPE

Turnover, NI and Tax Return of the companies

H3: IAS compliance in consistent manner and comparability of financial statements

among selected companies has a positive relation

6.5.0 Analyze Hypothesis No.1 (Compliance with IAS 1)

6.5.1Defining Variables

Variable that are required to proof our first hypothesis are –

Variable Variable identification

Dependent variable Overall industry percentage of compliance with IAS

Independent variable Company’s respective compliance score

6.5.2. Independent Variable Scoring Procedures

Item No.3

Item No.2

Item no.3

Comparedwith relatedrules in IAS

Compared

Notcompared

Item 1

Item 2

Item 3

Value =1

Value=1

Value =0

Item.4Partiallycompared Item 4

Value=0.5

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Figure: Assigning value to the items representing variables

When we compare different element of financial statement with rules of IAS -1 then –

If those item complied with respective IAS rules then the value assigned to that complied

item will be 1

If the item doesn’t comply with respective IAS rules then the value assigned to those item

will be 0

When some item doesn’t fully comply with relevant IAS rules then the assigned value to

the dependent variable will be 0.5

Company Codes For Analytical Purpose :

C1= Square Pharmaceuticals C6= Popular Pharmaceuticals Ltd. (PPL)

C2= Incepta Pharmaceuticals C7= Delta Pharma Ltd

C3= Beximco Pharmaceuticals C8= Sun Pharmaceutical (Bangladesh) Ltd

C4= IBN SINA Pharmaceutical Industry Ltd. C9= Radiant Pharmaceuticals Ltd

C5= ACI Ltd

Qualitative explanationcriteria on the IAS -1compliance scores

P a g e | 86




item will be 1


will be 0



Total compliancescore will be

execelent whenin between 90-

100%complianceensured

If total scorewill be in

between 70-90%then very good

complinace

If total score isless than 50%

then thecompany will bescored as poor inIAS compliance

If totalcompliance is in

between 50-70% then

moderatelygood or good

complaince withIAS






C5= ACI Ltd


P a g e | 86




item will be 1


will be 0








C5= ACI Ltd


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6.5.3. Arranging Data into Checklist (Based on Annual Reports of 2013)

Related

IAS

Facts to be compared C1 C2 C

3

C

4

C

5

C

6

C

7

C

8

C9

IAS

1.25

Financial is not prepared in accordance with

GAAP the disclose--

(a) Existence of factors arising doubt about GC 0 0 0 0 0 0 0 0 0

(b) Basis of FS preparation 1 1 1 1 1 1 1 1 1

(c) Discloser about not following GC 0 0 0 0 0 0 0 0 0

IAS

1.27

Accrual basis accounting

Prepare all FS in accrual basis except CF

statement

1 1 1 1 1 1 1 1 1

IAS

1.10

Structural constant:

A complete set of FS comprise -

(a) Statement of FP 1 1 1 1 1 1 1 1 1

Statements of CF 1 1 1 1 1 1 1 1 1

(c) Statements of change in equity 1 1 1 1 1 1 1 1 1

(b) Statements of comprehensive income 1 1 1 1 1 1 1 1 1

(e) Notes to the FS 1 1 1 1 1 1 1 1 1

(f) Apply accounting policy retrospectively 1 1 1 1 1 1 1 1 1

IAS

1.31

Clearly identify and distinguish

information of FS

1 1 1 1 1 1 .5 .5 .5

IAS

1.49

Material fact are need to be disclosed 1 1 1 1 1 1 1 1 1

IAS

1.51

Clearly identify each FS and notes 1 1 1 1 1 1 .5 .5 1

IAS

1.51

Disclose necessaries to provide clear

understanding --

(a) Name of the reporting entity 1 1 1 1 1 1 1 1 1

P a g e | 88

(b) Whether individual or group entity 1 1 1 1 1 .5 1 .5 .5

(c) Date of the end of reporting period and

staring reporting period

1 1 1 1 1 1 1 1 1

(e) Presentation currency 1 1 1 1 1 1 1 .5 .5

(f) Level rounding fraction is used in FS

amounts

0 0 0 0 0 0 0 0 0

IAS

1.36

Present complete set of FS at least annually 1 1 1 1 1 1 1 1 1

1.36 When entity change its reporting period

(RP)

0 0 0 0 0 0 0 0 0

1.36 Reason of using longer or shorter RP 0 0 0 0 0 0 0 0 0

1.36 Disclose about why comparative amount

are not totally comparable

0 0 0 0 0 0 0 0 0

Statements of Financial position

IAS

1.60

Current –non Current distinction : assets

and liability are arranged in order of

liquidity and categories into spate section

1 1 1 1 1 1 1 1 1

IAS

1.32

Asset and liabilities will not offset unless

required by IFRS

1 1 1 1 1 1 1 1 1

IAS

1.29

Each material class with similar arranged in

similar section

1 1 1 1 1 1 1 1 1

1.29 Item with dissimilar nature will recorded

separately ( if immaterial)

1 1 1 1 1 .5 1 .5 1

IAS

1.54

Statement of Financial position should

include following items ( at least)

(a) Property , plant and equipment 1 1 1 1 1 1 1 1 1

(b) Investment property 1 1 1 1 1 1 1 1 1

(b) Intangible asset 1 1 1 1 1 1 1 1 1

(c) Financial assets 1 1 1 1 1 1 1 1 1

(d) Investment ( recorded as equity method ) 1 1 1 1 1 1 1 1 1

P a g e | 89

(e) Biological assets 0 0 0 0 0 0 0 0 0

(f) Inventories 1 1 1 1 1 1 1 1 1

(g) Trade and other receivable 1 1 1 1 1 1 1 1 1

(h) Cash and cash equivalent 1 1 1 1 1 1 1 1 1

IFRS

5.38

Total assets held for sale included in

disposal group

1 1 1 1 1 1 .5 .5 .5

IAS

1.54

Trade and other payable 1 1 1 1 1 1 1 1 1

1.54 Cash and cash equivalent 1 1 1 1 1 1 1 1 1

1.54 Provisions 1 1 1 1 .5 1 .5 .5 1

1.54 Financial liabilities ( excluding trade

payable and provisions)

1 1 1 .

5

1 1 1 1 .5

1.54 Liabilities and asset for current tax 1 1 1 1 1 1 1 1 1

1.54 Deferred tax liabilities and assets 1 1 1 1 1 1 1 1 1

1.54 Non-controlling interest ( presented with

equity excluding parent’s )

1 1 1 1 1 1 1 1 1

IAS

1.78

Disclose in notes

(a) Items of PPE 1 1 1 1 1 1 1 1 1

(b) Receivables 1 1 1 1 1 1 1 1 1

(c) Inventories sub classified 1 1 1 1 1 1 1 1 1

(d) Provisions 1 1 1 1 .5 1 1 .5 1

Equity capital and reserve 1 1 1 1 1 1 1 1 1

IAS

1.79

Discloser in SOFP

I. Number of share authorized 1 1 1 1 1 1 1 1 1

II The number of share outstanding 1 1 1 1 1 1 1 1 1

III Share per value 1 1 1 1 1 1 1 1 1

IV Reconciliation of number of outstanding

share at the end of the reporting period

1 1 1 1 1 1 1 1 1

P a g e | 90

IAS

20.24

Discloser about government grant related

assets ( including Non-monetary grants ) as

either

(a) Deferred income 0 0 0 0 0 0 0 0 0

(b) Deduction in arriving at the BV of assets 0 0 0 0 0 0 0 0 0

Statements of comprehensive Income

IAS

1.81

Present all income and expenses in ether -

(a) A single statement displaying

comprehensive income

1 1 1 1 1 1 1 1 1

(b) Two statement ( income statement

+statement of other CI)

--- --- - -- -- -- -- --

IAS

1.12

Income sate should be presented immediate

before the statement of other CI (IAS

1.81(b))

0 0 0 0 0 0 0 0 0

IAS

1.32

Income and expense are not offset unless

required by IFRS

1 1 1 1 1 1 1 1 1

IAS

1.88

Include all the items of income and expense

recognized in the period of P/L

1 1 1 1 1 1 1 1 1

IAS

1.29

Classify similar item under a defined title 1 1 1 1 1 1 1 1 1

IAS

1.82

The statement of comprehensive income

should include the following items --

(a) Revenue 1 1 1 1 1 1 1 1 1

(b) Financial cost 1 1 1 1 1 1 1 1 1

(C) Share of profit / loss associated with joint

venture

1 1 1 1 1 .5 .5 1 .5

(d) Tax expense 1 1 1 1 1 1 1 1 1

(e) Profit/loss 1 1 1 1 1 1 1 1 1

(f) Share of other comprehensive income 1 1 1 1 .5 .5 1 .5 1

P a g e | 91

associated with joint venture

(g) Total comprehensive income 1 1 1 1 1 1 1 1 1

IAS

1.83

Discloser in the statement of CI

(a) Profit or loss attributable

(I)NCI 1 1 1 1 1 1 .5 .5 1

(II) Owner’s of the parents 1 1 1 1 1 1 1 1 1

(b) Total comprehensive income for the period

attributable to

(I)NCI 1 1 1 1 1 1 1 .5 1

(II) Group reserve 1 1 1 1 1 1 1 1

IAS

1.91

Present component of other CI ether

(a) Net of related tax effect 1 1 1 1 1 1 1 1 1

(b) Before tax effect with one amount of

income tax relating to those companies

- - - - - - - - -

IAS

20.29

Govt. grant related income are presented as

ether ---

(a) Separately under general heading “other

income”

1 1 1 1 1 1 1 1 1

(b) Deducted in reporting the related expenses - - - - - - - - -

IAS

1.106

Actuarial gain or losses are recognized in

other CI

1 1 1 1 1 1 1 0 0

IAS

33.6

Present basic and diluted EPS 1 1 1 1 1 1 1 1 1

IAS

1.98

Circumstance that requires separate

discloser

(a) Write-down of inventories to NRV 1 1 1 1 1 1 1 1 1

(b) Disposal of PPE 1 1 1 1 1 1 1 1 1

(c) Disposal of investment 1 1 1 1 1 1 1 1 1

P a g e | 92

(d) Discounted operation 1 1 1 1 1 1 1 1 1

(e) Litigation settlement 0 0 0 0 0 0 0 0 0

(f) Other reversal of provision 1 1 1 1 1 1 1 1 1

(g) Other reversal of provision 1 1 1 1 .5 1 .5 .5 .5

IAS

1.90

Disclose the amount of income tax relating

to each component of other comprehensive

income

1 1 1 1 1 1 1 1 .5

Change in Equity statement

IAS

1.29

Each similar item are classified and

presented separately

1 1 1 1 1 1 1 1 1

IAS

1.29

Dissimilar item are also need to be

presented separately when those are

immaterial

1 1 1 1 1 1 1 1 1

IAS

1.30

Material item should be reported ether in

statement of change in equity or notes

1 1 1 1 1 1 1 1 1

IAS

1.31

Required to present specific discloser

required by IFRS

1 1 1 1 1 1 1 1 1

IAS

1.106

Statement of change in equity should

include the following item (recommended )

1 1 1 1 1 1 1 1 1

(a) Total comprehensive income 1 1 1 1 1 1 1 1 1

(b) Retrospective application to the each

component of equity

1 1 1 1 1 1 1 1 1

(c) Disclosing change in profit/loss , other CI ,

transactions with owners

1 1 1 1 1 1 1 1 1

IAS

1.10A

Present each component of equity ether in

statement of change in equity or notes

1 1 1 1 1 1 1 1 1

IAS

1.108

The component of equity is accumulated

balance of each class of other

comprehensive income and retained

earning

1 1 1 1 1 1 1 1 1

P a g e | 93

Statement of cash flow

IAS

1.29

Each similar item with same nature should

presented separately in CF statement

1 1 1 1 1 1 1 1 1

IAS

1.29

Each dissimilar item are presented

separately ( if not material)

1 1 1 1 1 1 1 1 .5

IAS

1.30

Material item should be reported ether in

statement of CF or notes

1 1 1 1 1 1 1 .5 .5

IAS

1.06A

CF statement should be made in direct or

indirect way and there should be

representation of operational activities ,

investment activities and financial activities

1 1 1 1 1 1 1 1 1

Company’s respective score in compliance of IAS prescribed way in preparation and

representation of four major financial statements will be shown in the table given bellow. We

will assign score based on how much the company score in compliance with total relevant IAS

items in each financial statement section (whereby denominator is the full compliance score; for

example- there are 4 IAS item and if a company comply 2 item then the company’s score will be

.5(2/4) ). For ease in calculation we will round off up to two decimal.

Identity of

Financial

Statement

C1 C2 C3 C4 C5 C6 C7 C8 C9

Consolidated

financial

statement

(29/32)

=.91

(29/32)

=.91

(29/32)

=.91

(28.5/3

2)

=.89

(28/32)

=.88

(28.5/3

2)

=.89

(28/32)

=.88

(27/32

)

=.84

(28/3

2)

=.88

Statement of

comprehensi

ve income

(26/28)

=0.93

(26/28)

=.93

(27/28)

=.96

(25/28)

=.89

(25/28)

=.89

(26/28

)

=.93

(25.5/28

)

=.91

(24/28

)

=.86

(23.5/

28)

=.84

P a g e | 94

Statement of

change in

equity

(10/10)

=1

(10/10)

=1

(10/10)

=1

(10/10)

=1

(10/10)

=1

(10/10

)

=1

(10/10)

=1

(10/10

)

=1

(10/1

0)

=1

Statement

of change in

Cash Flow

(4/4)

=1

(4/4)

=1

(4/4)

=1

(4/4)

=1

(4/4)

=1

(4/4)

=1

(4/4)

=1

(3.5/4)

=.88

(3/4)

=.75

Basic/

general

compliances

(16/22)

=.72

(16/22)

=.72

(16/22)

=.72

(16/22)

=.72

(16/22)

=.72

(15.5/2

2)

=.70

(15/22)

=.68

(14/22

)

=.63

(14.5/

22)

=..66

Now we will use these summarized data to represent the IAS-1 compliance into many

dimension. First the thing that we want to justify is IAS-1 compliance in case of presentation,

preparation, reporting and illustrating Balance sheet, Cash Flow, Change in equity and

Comprehensive Income statement items and other accounting policies regarding these major

financial statement. We also concerned about to see major general compliance (which is

common for all companies operating in different industries, geographical location and economic

atmosphere) with IAS-1

Companycodes

ConsolidatedFinancial

Statement itemscompliance with

IAS-1

Comprehensiveincome

statement itemscompliance with

IAS-1

Change inEquity statement

itemscompliance with

IAS-1

Cash Flowstatement itemscompliance with

IAS-1

Generalcompliances

of IAS-1

C1 0.91 0.93 1 1 0.72C2 0.91 0.93 1 1 0.72C3 0.91 0.96 1 1 0.72C4 0.89 0.89 1 1 0.72C5 0.88 0.89 1 1 0.72C6 0.89 0.93 1 1 0.7C7 0.88 0.91 1 1 0.68C8 0.84 0.86 1 1 0.63C9 0.88 0.84 1 0.88 0.66

Source: own calculation

P a g e | 95

If we graphically depict individual company compliance scenario with IAS-1 then this will

looked as like as given bellow-


Information is implicitly included in those graphical line movements are as follow –

1. All the companies fully comply with IAS-1 case of preparing statement of change of

equity. so we can forecast that company fully disclose all relevant trisection that

influence a company’s equity in full and apparent manner

2. In case of preparing comprehensive income statement we observe a huge fluctuation in

compliance with IAS-1 among those companies. Which mean some company fight shy

some of IAS-1 rules which ether not adopted by ICAB or is obsolete in this particular

industry or compliance of those compromised IAS-1 rules is situational based which

are not incurred in 2013 ( result in avoidance of them)

3. There are several ways to create consolidating financial statement and many

contingent issues exist in the time of creating it. For example : if less than 20%

ownership interest is possessed by investee then follow cost method ;otherwise follow

equity method / consolidation ( in case of above 20% or above 50% respectively ). So

there are also fluctuation is seen apparently in the graph representing consolidated

financial statement compliance with IAS-1

0

0.2

0.4

0.6

0.8

1

1.2

C1 C2 C3 C4 C5 C6 C7 C8 C9

Consolidated FinancialStatement items compliance withIAS-1

Comprehensive income statementitems compliance with IAS-1

Chage in Eqiity statement itemscompliance with IAS-1

Cash Flow statement itemscompliance with IAS-1

General compliancse of IAS-1

P a g e | 96

4. All the companies except C8 and C9 follow the IAS-1 prescribed guideline in

preparation of Cash Flow statement. Since C8 and C9 follow indirect approach to

record cash follow statement related item so some of IAS-1 rules which usually deal

with adoption of direct method has overlooked by the companies( consequently scored

less in comparative to other companies)

5. Summary and comments according to dependent variable scoring criteria ( that has

give in a clip art at the very beginning of the analysis part)

Description IAS-1 Compliance in scoring

range

Comment in short

Preparation Consolidated

Financial Statement

compliance over the industry

sample

Ensure 85-95% compliance

(graph line is positioned in

between 1 and 0.8; so we

average it =0.9. To ensure

accuracy we just expressed

the average as 0.9±0.05)

Excellent

compliance ( best

compliance score in

range)

Very Good

compliance for

lowest compliance

score( %) in range

Preparation Cash flow

Statement compliance over

the industry sample

Ensure 77.5-92.5%

compliance (graph line is

positioned in between 1 and

0.75; so we average it

=0.875. To ensure accuracy

we just expressed the

average as 0.875±0.05)

Excellent

compliance ( best

compliance score in

range)

Very Good

compliance for

lowest compliance

score( %) in range

P a g e | 97

Preparation Comprehensive

Income Statement

compliance over the industry

sample

Ensure 80-90% compliance

(graph line is positioned in

between .8 and 0.9; so we

average it =0.85. To ensure

accuracy we just expressed

the average as 0.85±0.05)

Very good

compliance ( based

on lowest and best

compliance score in

range

Preparation Change in Equity

Statement compliance over

the industry sample

Companies ensure 99-100%

compliance. Compliance rate

is so high because company ,

their auditor and other

authorities are used to

rigorously maintain

transparency in capital and

equity item because

stockholders are strongly

based on those information

Excellent

compliance ( based

on lowest and

highest compliance

score in range)

General or Basic compliance

over the industry sample

Ensure 62.5-72.5%

compliance (graph line is

positioned in between 0.65

and 0.7; so we average it

=0.675. To ensure accuracy

we just expressed the

average as 0.675±0.05)

Very good

compliance ( best

compliance score in

range)

Good compliance

(based lowest

compliance score in

range)

Source: own analytical justification

P a g e | 98

Now we want to see the percentage of total compliance in presenting each type of financialstatements; covered by IAS-1

Particulars

Average score ofall companies

Total score of allfinancial statement

compliance ifIAS-1 fully

applied

Share in total scoreof all financial

statementcompliance In percentage

ConsolidatedFinancial

Statement itemscompliance with

IAS-1 0.887526393 5 0.18 18%Comprehensive

income statementitems compliance

with IAS-1 0.903723278 5 0.18 18%Change in Equitystatement itemscompliance with

IAS-1 1 5 0.2 20%Cash Flow

statement itemscompliance with

IAS-1 0.985896689 5 0.20 20%General

compliances ofIAS-1 0.695941376 5 0.14 14%

% of compliancewith IAS-1 of all

companies intotal compliancescore ( achieved

when fullycomplied with

IAS-1) 4.473087737 5 0.89 89%


P a g e | 99

To illustrate the table a pie chart is given bellow –

Compliance of IAS-1 in preparation of different financial statement is equally allocated. So

dispersion among scores in each area of interest is less. That means company equally exercises

IAS-1 in case of preparing consolidated financial statement, comprehensive income, cash flow

statements, and statement of change in equity.

Chage in Eqiitystatement items

compliance with IAS-122%

Cash Flowstatement itemscompliance with

IAS-122%

Generalcompliancse of

IAS-116%

Share of Each Finacial Satement And GeneralComplinace With Total Compliace Score in The Scale

of Five

P a g e | 99






ConsolidatedFinancial Statement

items compliancewith IAS-1

20%

Comprehensiveincome statement

items compliance withIAS-120%


of Five

P a g e | 99






ConsolidatedFinancial Statement

items compliancewith IAS-1

20%

Comprehensiveincome statement

items compliance withIAS-120%


of Five

P a g e | 100

Findings:

All the firms exercise IAS-1 in case of representing financial statement

Higher compliance in case of presenting and creating Cash Flow Financial Statement and

Statement of Change in Equity 44% of total compliance

Second higher compliance in case of preparing and presenting Consolidated Financial

Statement and Comprehensive Income Statements whereby the companies ensure 40% of

total compliance ( combined score 40% )

Lowest compliance in case of applying 16% of total compliance in practicing general

accounting practice reported and recommended by IAS-1

6.5.4. Decision Making

H1: The companies create and represent their financial statement in accordance withIAS-1 (became true)

H0: The companies don’t create and represent their financial statement in accordancewith IAS-1 (doesn’t support by analysis and proved as wrong statement)

P a g e | 101

6.6. Verifying “Hypothesis 2” (Adoption of IAS 16 through Using DifferentDeprivation Method Somehow Affect PPE Turnover, NI and Tax Return ofthe Companies)

6.6.1. Introductory Discussion

Property plant and equipment represents substantial investments particularly to manufacturing,

extractive and telecommunication companies. The method of recognition and measurement for

such assets can have significant impact on the profitability of the firm. In this article, I examine

the intensity of Property Plant and Equipment, the depreciation methodology and the overall

impact on profitability.

As per IAS 16, PPE can be defined as tangible assets that are held for use in the production or

supply of goods and services or for rental to others, or for administrative purposes and are

expected to be used during more than one accounting period (more than one year). Ex-ante, a

company spends an initial investment to purchase this asset with the hope that, these assets will

generate, or facilitate in the generation of income (in the economic sense of it). Once recognized

in the statement of financial position, an entity needs to provide for depreciation i.e. spread the

cost of the asset over its estimated useful life taking into account any residual value. The

common methods of charging depreciation are the straight-line method, the diminishing balance

method the sum of the year’s digits method and the units of production method. The methods of

depreciation accounting differs from firm to firm, but in the long run, irrespective of the

accounting method used, the net effect on the financial statement should be the same. However, a

problem arises when companies’ profits are compared with each other in the short run given that

the amount of depreciation can distort profit levels.

P a g e | 102

A review of the financial statements of Pharmaceutical firms reveals that a majority prefer the

straight-line method of charging depreciation as opposed to the diminishing balance method. The

rationale of the straight-line method of depreciation is that, an equal amount of the assets useful

life is consumed on an annual basis. This results in a constant depreciation charge for the assets

over the assets useful life provided there are no revaluations or major improvements to the asset

in the following accounting period. The advantage to this method is that, it is easy to understand

and apply in practice hence many professional accountants prefer this method to the diminishing

balance method. Another reason for its popularity is that, it is a tool of gauging stable profits

over the years as there is no variability in the depreciation expense. The hind side of this method

is that, for some assets, businesses turn to use them more when the asset is new than when it gets

older. For some industries, the seasonal nature of it may require more usage of the asset when

demand peaks (Fared& Danial; 2001). This will mean that, there is an under charge for

depreciation in that year when the asset is over used that in period when the asset is idle.

6.6.2. Justifying and Analyzing Hypothesis 4

To justify hypothesis (4) we create a simulated scenario given bellow---

Depicted scenario to justify H4:

For example supposes company “A” buys a machine for 10,000 and the estimated useful life of

the asset is 10 years without any residual value. For justify the influence on turnover we set

Revenue 100000 in every of 10 year consistently; increasing or decreasing it by 2000 in other 2

scenario. The annual depreciation charge of 10, 00 is charged as an expense to the income

statement as see from the table below.

P a g e | 103

Straight Line Depreciation Scenario

Revenueassumed

decreasingby 2000

constantly

Revenueassumed

inceasing by2000

constantly

Revenueassumedconstant

Net BV orending PPE

PPEturnover forconstant

PPEturnover forincreasingrevenue

PPEturnover fordeceasingrevenue

98000 102000 100000 9000 11.111111 11.333333 10.88888996000 104000 100000 8000 12.5 13 1294000 106000 100000 7000 14.285714 15.142857 13.42857192000 108000 100000 6000 16.666667 18 15.33333390000 110000 100000 5000 20 22 1888000 112000 100000 4000 25 28 2286000 114000 100000 3000 33.333333 38 28.66666784000 116000 100000 2000 50 58 4282000 118000 100000 1000 100 118 8280000 120000 100000 0 Nill Nill Nill

Table: Straight line depreciation impact on PPE turnover

Straight-line Method Depreciation Charges

Year Annual Depreciation Charge Net Book Value Accumulated Depreciation1 1,000 9000 10002 1,000 8000 20003 1,000 7000 30004 1,000 6000 40005 1,000 5000 50006 1,000 4000 60007 1,000 3000 70008 1,000 2000 80009 1,000 1000 9000

10 1,000 0 10000Source: Own Calculations

P a g e | 104

Revenueassumed

decreasingby 2000

constantly

Revenueassumedincreasing

by2000

constantly


DepreciationinSL method

(C)EarningBeforeTax forconstant

(I)EBT forincreasing

Revenue

(D)EBT fordecreasing

Revenue98000 102000 100000 1000 99000 101000 9700096000 104000 100000 1000 99000 103000 9500094000 106000 100000 1000 99000 105000 9300092000 108000 100000 1000 99000 107000 9100090000 110000 100000 1000 99000 109000 8900088000 112000 100000 1000 99000 111000 8700086000 114000 100000 1000 99000 113000 8500084000 116000 100000 1000 99000 115000 8300082000 118000 100000 1000 99000 117000 8100080000 120000 100000 1000 99000 119000 79000

Table: Straight line depreciation impact on PPE turnover, NI and Tax return

Tax effect in Straight line depreciation method

(C)tax 20%

(D)tax@20%

(I)tax @20%

(C)NI

(D)NI

(I)NI

19800 19400 20200 79200 77600 8080019800 19000 20600 79200 76000 8240019800 18600 21000 79200 74400 8400019800 18200 21400 79200 72800 8560019800 17800 21800 79200 71200 8720019800 17400 22200 79200 69600 8880019800 17000 22600 79200 68000 9040019800 16600 23000 79200 66400 9200019800 16200 23400 79200 64800 9360019800 15800 23800 79200 63200 95200

Notes: This table has relation with the table given above

P a g e | 105

PPE turnover scenario in SL depreciation method:

Change in PPE turnover in different simulated condition and in different fiscal year in the

straight-line depreciation will graphically looked like as follow –

Illustration:

if the depreciation is determined in accordance with SL depreciation method then the

companies will face a gradual increase in PPE turnover over 8 year and will reach in

peak in PPE turnover in 9th year of total useful life of PPE (10year).in last year of useful

life of PPE; the PPE will became 0 because there are no residual value of PPE left.

Ultimate finding is that “company can gain growing PPE return although its revenue is in

increasing, decreasing and constant situation.

0

50

100

150

200

250

300

350

1 2 3 4 5 6 7 8 9 10

PPEturnover for deceasing revenue

PPEturnover for increasing revenue

PPEturnover for constant

P a g e | 106

EBT Scenario in SL depreciation method:

Illustration:

If revenue of the companies are kept constant then the EBT will be go through a leaner

direction that mean the company will face consistent profit over the 10 year of useful life

of PPE

If revenue of the companies are kept increasing constantly by 2000 in each year then the

EBT will be go through a upward direction that mean the company will face increasing

profit over the 10 year of useful life of PPE

If revenue of the companies are kept deceasing constantly by 2000 in each year then the

EBT will be go through a downward direction( but at too lesser extent) that mean the

company will face little decrease in profit over the 10 year of useful life of PPE

0

50000

100000

150000

200000

250000

300000

350000

1 2 3 4 5 6 7 8 9 10

(D)EBT fordecreasing Revenue

(I)EBT forincreasing Revenue

(C)Earningbefore tax for constant

P a g e | 107

The ultimate finding is that “ SL depreciation method gives a consistent profit over the

year and thus ensuring transparency in profit as well as ease in calculating tax return

Tax scenario in SL depreciation method:

Illustration:

If revenue of the companies are kept constant then the tax will be go through a leaner

direction that mean the company will face consistent tax return over the 10 year of useful

life of PPE


tax return of the companies will be go through a upward direction that mean the

company will face mostly constant tax( with a slight decrease) return over the 10 year of

useful life of PPE

0

10000

20000

30000

40000

50000

60000

70000

1 2 3 4 5 6 7 8 9 10

(I) tax@20%

(D) tax@20%

(C)tax 20%

P a g e | 108


Tax Return will be go through a downward direction( but at greater extent) that mean

the company will face greater decrease in tax return over the 10 year of useful life of

PPE

The ultimate finding is that “ SL depreciation method gives a consistent tax provision

over the year in case of constant and increasing revenue and a good cut of tax return in

case of decreasing revenue thus ensuring good profitability of the companies as well as

help in case downturn years

Net Income scenario in Straight Line depreciation system:

Illustration:

If revenue of the companies are kept constant then the NI will be go through a leaner

direction that mean the company will face consistent NI over the 10 year of useful life

of PPE

0

50000

100000

150000

200000

250000

1 2 3 4 5 6 7 8 9 10

(I)NI

(D)NI

(c)NI

P a g e | 109


NI of the companies will be go through a linear direction that mean the company will

face mostly constant NI ( with a slight increase) over the 10 year of useful life of PPE


NI will be go through a downward direction( but at greater extent) that mean the

company will face greater decrease in NI over the 10 year of useful life of PPE

The ultimate finding is that “ Straight line depreciation method gives a consistent NI

over the years in case of constant and increasing revenue and a good decrease in NI in

case of decreasing Revenue scenario

Diminishing Balance Depreciation Scenario

The diminishing balance method on the other hand assumes that in the early life of the asset, a

higher depreciation charged is more appropriate than in the later life as most assets turn to be

more productive and heavily used when new than when it is old. This involves the application of

a constant rate of depreciation to the diminishing value of the asset. Assume the example above

holds true, with a depreciation rate of 20%, the same asset could be depreciated as follows;

Diminishing Balance Depreciation Charges

YearAnnual Depreciation

ChargeAnnual Depreciation

Percentage Net Book ValueAccumulatedDepreciation

1 2000 20% 8000 20002 1600 20% 6400 36003 1280 20% 5120 48804 1024 20% 4096 59045 819 20% 3277 67236 655 20% 2621 7379

P a g e | 110

7 524 20% 2097 79038 419 20% 1678 83229 336 20% 1342 8658

10 268 20% 1074 8926Source: Own Calculations

It is clear that the depreciation charge for the first three years using the straight line method is

3000 taka (1000+1000+1000) less than that of the diminishing balance method of 4880 taka

(2000+1600+1280) for the same period. A visual comparison of the two common approaches to

depreciation accounting should help in understanding its impact on financial statements.

Figure: Gorge & Hidd ;2005; Depiciation practice & Methods; p.32

P a g e | 110

7 524 20% 2097 79038 419 20% 1678 83229 336 20% 1342 8658







P a g e | 110

7 524 20% 2097 79038 419 20% 1678 83229 336 20% 1342 8658







P a g e | 111

Revenueassumed

decreasingby 2000

constantly

Revenueassumedincreasing

by2000

constantly


Net BV orending PPE

PPEturnoverfor constant

PPEturnoverforincreasingrevenue

PPEturnoverfordeceasingrevenue

98000 102000 100000 8000 12.5 12.75 12.2596000 104000 100000 6400 15.625 16.25 1594000 106000 100000 5120 19.53125 20.703125 18.35937592000 108000 100000 4096 24.414063 26.367188 22.46093890000 110000 100000 3277 30.515716 33.567287 27.46414488000 112000 100000 2621 38.153377 42.731782 33.57497186000 114000 100000 2097 47.687172 54.363376 41.01096884000 116000 100000 1678 59.594756 69.129917 50.05959582000 118000 100000 1342 74.515648 87.928465 61.10283280000 120000 100000 1074 93.10987 111.73184 74.487896

Table: DB method impact in PPE turnover

Revenueassumed

decreasingby 2000

constantly

Revenueassumed

increasing by2000

constantly


DepreciationinDB method

(C)EarningBefore Taxfor constant

(I)EBT forincreasing

Revenue

(D)EBT fordecreasing

Revenue

98000 102000 100000 2000 98000 100000 9600096000 104000 100000 1600 98400 102400 9440094000 106000 100000 1280 98720 104720 9272092000 108000 100000 1024 98976 106976 9097690000 110000 100000 819 99181 109181 8918188000 112000 100000 655 99345 111345 8734586000 114000 100000 524 99476 113476 8547684000 116000 100000 419 99581 115581 8358182000 118000 100000 336 99664 117664 8166480000 120000 100000 268 99732 119732 79732

Table: DB method impact in EBT

P a g e | 112

(C)tax 20%

(D)Tax@20% (I) tax@20%

(c)NI

(D)NI

(I)NI

19600 19200 20000 78400 76800 8000019680 18880 20480 78720 75520 8192019744 18544 20944 78976 74176 83776

19795.2 18195.2 21395.2 79180.8 72780.8 85580.819836.2 17836.2 21836.2 79344.8 71344.8 87344.8

19869 17469 22269 79476 69876 8907619895.2 17095.2 22695.2 79580.8 68380.8 90780.819916.2 16716.2 23116.2 79664.8 66864.8 92464.819932.8 16332.8 23532.8 79731.2 65331.2 94131.219946.4 15946.4 23946.4 79785.6 63785.6 95785.6

Table: DB methods impact in Net income

PPE turnover scenario in diminishing balance depreciation method:

Change in PPE turnover in different simulated condition and in different fiscal year in the

straight-line depreciation will graphically looked like as follow –

0

50

100

150

200

250

300

1 2 3 4 5 6 7 8 9 10

PPEturnover for deceasing revenue

PPEturnover for increasing revenue

PPEturnover for constant

P a g e | 113

Illustration:

if the depreciation is determined in accordance with DB depreciation method then the

companies will face a gradual increase in PPE turnover over 10 year of useful life of PPE

.In last year of useful life of PPE; the PPE will became 0 because there are no residual

value of PPE left.

Ultimate finding is that “company can gain growing PPE return although its revenue is in

increasing, decreasing and constant situation”. In SL depreciation method PPE turnover

will became 0 at the end of 10th year. So in this aspect DB depreciation has good score in

comparative to SL depreciation because it increase profit by the invested amount in PPE

till the end of useful life of PPE.

EBT Scenario in diminishing balance depreciation method:

0

20000

40000

60000

80000

100000

120000

140000

1 2 3 4 5 6 7 8 9 10

(C)Earningbefore tax for constant

(I)EBT forincreasing Revenue

(D)EBT fordecreasing Revenue

P a g e | 114

Illustration:

If revenue of the companies are kept constant then the EBT will be go through a leaner

direction that mean the company will face consistent profit over the 10 year of useful life

of PPE


EBT will be go through a upward direction that mean the company will face extensive

increase in profit over the 10 year of useful life of PPE


EBT will be go through a downward direction that mean the company will face a sharp

decrease in profit over the 10 year of useful life of PPE

The ultimate finding is that “ DB depreciation method gives a inconsistent profit over the

year and thus reducing transparency in profit as well as in case of calculating tax return

Tax scenario in diminishing balance depreciation method:

0

10000

20000

30000

40000

50000

60000

70000

1 2 3 4 5 6 7 8 9 10

(I) tax@20%

(D) tax@20%

(C)tax 20%

P a g e | 115

Illustration:

If revenue of the companies are kept constant then the tax will be go through a leaner

direction( but not so smooth as SL depreciation) that mean the company will face

consistent( may have 5-10% inconsistency) tax return over the 10 year of useful life of

PPE


tax provision of the companies will be go through a upward direction for 1-4 year then

became consistent in rest of the year that mean the company will face inconstant tax

return over the 10 year of useful life of PPE


Tax Return will be go through a downward direction( but at greater extent) that mean

the company will face greater decrease in tax return over the 10 year of useful life of

PPE

The ultimate finding is that “ DB depreciation method gives a consistent (with 5-10%

inconsistency) tax provision over the year in case of constant and increasing revenue

and a good cut of tax return in case of decreasing revenue thus ensuring good

profitability of the companies as well as help in case downturn years ( but not so much as

straight line depreciation )

P a g e | 116

Net Income scenario in Straight Line depreciation system:

Illustration:

If revenue of the companies are kept constant then the NI will be go through a leaner

direction that mean the company will face consistent NI over the 10 year of useful life of

PPE


NI of the companies will be go through a linear direction that mean the company will

face mostly constant NI ( with a slight increase) over the 10 year of useful life of PPE


NI will be go through a downward direction( but at lesser extent in comparative to SL

depreciation) that mean the company will face sharp decrease in comparative to SL

depreciation method in NI over the 10 year of useful life of PPE

0

50000

100000

150000

200000

250000

300000

1 2 3 4 5 6 7 8 9 10

(I)NI

(D)NI

(c)NI

P a g e | 117

The ultimate finding is that “Diminishing balance depreciation method gives a consistent

NI over the years in case of constant and increasing revenue and a sharp decrease in NI

in case of decreasing Revenue scenario

6.6.3. Decision making about validity of developed hypothesis based onanalysis findings:

FINDINGS OF ANALYSIS

FINDINGS OF ANALYSIS

C1

C2

C3

C4

C5

C6

C8

C7

C9

STRAIGHTLINE

DEPRICIATION

Easy to calculate tax ( moretransparent view of profit if taxis kept in a consistent level )

More constraint profit ( NI)over years

Easy to calculate andunderstandable

Good PPE turnover up to ayear before the end of usefullife

Encourage comparability ofprofit across year.

DEMINSIINGBALANCE

DEPRICIATION

Selectedcom

paniescoded

asC

1,C2…

….C

9 PPE turnover up to the end of

PPE useful life May generate SV ( salvage value

)which add some profit intoprofit of the year in which the SVis sold at market price

Inconsistency in tax return (although looked like consistent(5-10% inconsistency ) in case ofincreasing or decreasing revenuesituation)

Inconsistency in profit insuccessive year during life spanof PPE

Comparability of profit acrossyears is somehow compromisedby 5-10%

P a g e | 118

Decision about the validity of H2:

A review of the financial statements for a cross – section of pharmaceutical firms suggests that

PPE is concentrated around the manufacturing industry. Evidence also point to the fact that for

most companies, the Straight-line method of depreciation is a better approach as opposed to the

diminishing balance method.

6.6.4.Depreciation Policy of Selected Listed Companies in Pharmaceutical Industry ofBangladesh

Company Name Depreciation PolicyC1 Straight-Line

C2 Straight-Line

C3 Straight-Line

C4 Straight-Line

C5 Straight-Line

C6 Straight-Line

C7 Straight-Line

C8 Deminishing Balance

C9 Deminishing Balance

SOURCE : Notes to Financial Statements

Based on finding of the Simulated Analysis we can say that adoption of IAS 16 through using

different depreciation method somehow affect PPE Turnover, NI and Tax Return of the

companies.

P a g e | 119

In practice, the depreciation method chosen could have material impact on the financial

statements particularly when comparing company profitability metrics. The reason for this may

be apparent, but for the sake of clarity, let me provide some insights--

For companies using the straight-line method, depreciation expenses are more predictable

and there is a stable deprecation charge over time. The earnings of companies using the

straight line method will be higher in the initial years than companies using the declining

balance approach.

However, for the diminishing balance method, depreciation charge is higher in the initial

years for the asset. This means that depreciation charge for comparable companies will be

different for a given financial period.

6.6.5.Materiality of and Property Plant and Equipment and Its Depreciation (FY 2013)

( All the monetary amount here are expressed in millions)

Companies EBIT (a) EBITDA(b)

Depreciation

and

Amortization

(a-b) PPE

Total

Assets

Deprecation

As

Percentage

of PPE

PPE as

Percentage

of Total

Assets

C1 37019 39973 2954 25418 685913 12% 4%

C2 104891 150684 45793 256853 3415510 18% 8%

C3 162706 164732 2026 19414 1667882 10% 1%

C4 403 3765 3362 45130 74129 7% 61%

C5 21986 38611 16625 143643 197081 12% 73%

C6 570 764 194 1555 3792 12% 41%

C7 52589 55352 2763 20907 516632 13% 4%

C8 25969 30841 4872 29530 68391 16% 43%

C9 86 270 184 6923 9084 3% 76%

Source: annual reports of the respective companies

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The depreciation rate of assets for some firms differ materially from others as different

depreciation methods are applied with different depreciation rates. However, I should mention

that, as per IAS 16 accounting for Property Plant and Equipment, once a particular depreciation

method is chosen, it should be applied consistently year –on-year. Merely comparing one year

earnings results of two or more companies without taking into account depreciation charge could

obscure visibility on the drivers of earnings. Users of financial statements should be aware that, a

choice of accounting policy for PPE, i.e. the cost model or the revaluation method to a large

extent determines the depreciation charge on an annual basis.

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6.7. Proving Hypothesis 3: IAS Compliance in Consistent Manner andComparability of Financial Statements Among Selected Companies has aPositive Relation

6.7.1. Brief Identification

Comparability means complying or staying with a single IAS rule (whereby multiple IAS hasavailable to perform similar treatments) overtime (Henry, Josef 1998). In simple waycomparability means doesn’t changing accounting police over the years until IFRS allow it.Comparability is mainly two types-comparability of financial statement of the same companyover the years and comparability of financial statement among industry firms.

Scoring variable:

Change in accounting policy, estimates and error (independent variable) scoring procedure------

Yes

Compare

No

Since comparability is justified based on over the year consistency of accounting policies; we

should select 9 year annual report data on IAS compliance accounting practice , policies and

prescribed methods (including data of 2013) and justify their consistency / comparability across

years.

All the scores given in the table are accumulated and average score of consistency/

compatibilities of 9 companies (C1, C2, C3, C4, C5, C6, C7, C8 and C9) -----

Accountingpolicy adoptedby a singlecompany(among 9companies)for the firsttime

Accountingpoliciesapplied innext years

Iscompared

?

Yes= (1/9)

No= (0/9)

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Related IAS

Particulars 2005

2006

2007

2008

2009

2010

2011

2012

2013

2014IAS-1 Followinggoingconcernprincipleover theyear by the9 companies

1 1 1 1 1 1 1 1 1 1

IAS-16 PP&Evaluation atcost anddeprecatedover itsuseful life1 1 1 1 1 1 1 1 1 1

IAS-16 Depreciatethe asset atetherstraight lineanddiminishingbalancedepreciationmethod

1 1 1 1 1 1 1 1 0.78 0.78

IAS -2 Calculatingrawmaterial ,packing andwork inprogress1 1 1 1 1 1 1 1 1 1

IAS-2 Finishedgoodsaccounting 1 1 1 1 1 1 1 1 1 1IAS-2 Spare partsandaccessoriesaccounting

1 1 1 1 1 1 1 1 1 1IAS-2 Good intransitaccounting 1 1 1 1 1 1 1 1 1 1IAS -12 Income taxis calculatedas per as taxrules

1 1 1 1 1 1 0.89 1 1 0.89IAS -18 Revenuerecognitionin case ofsales of

1 1 1 1 1 1 1 1 1 1

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goodsIAS-18 Dividendrecognitionaccounting 1 1 1 1 1 1 1 1 1 1

IAS-18 Interestincomerecognitionaccountingpractice1 1 1 1 1 1 1 1 1 1

IAS-21 Foreigncurrencytrisectionexchangerate anddealing withyearendtransactionsdenominated in foreigncurrency

1 1 1 1 1 1 1 1 1 1

IAS-7 CFstatementpreparation 1 1 1 1 1 1 .89 1 .78 1IAS-33 EPScalculation 1 1 1 1 1 1 1 1 1 1Explanation of the table in a sequential order (top to bottom):

IAS-1: all the 9 companies follow going concern principle consistently over the 9 years

in case of preparing, recoding, dealing accounting trisections and their respective

financial statements. So we score them as all with 1.

IAS-16 : all the 9 company record PP&E at their historical cost and depreciate it over

their useful life

IAS-16: All the company consistently follow straight line depreciation method

consistently up to 2010 and in year 2013 C8 and c9 switch from straight line depreciation

into diminishing balance method . In 2014 C8 and C9 returned back into straight line

depreciation method due to some systematic and reporting difficulties

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IAS-2: calculate the raw material, packing materials and work in progress in term of

weighted cost over the years consistently by all the 9 companies. So we assign 1 to each

year.

IAS-2: calculate the finished goods at lower of cost or net estimated realizable value

consistently over the years by all the 9 companies. So we assign 1 to each year

IAS-2: calculate the Spare & Accessories in term of weighted cost over the years

consistently by all the 9 companies. So we assign 1 to each year.

IAS-2: Good-in transit is calculated at cost over the years consistently by all the 9

companies. So we assign 1 to each year

IAS-12: in the year 2011 and 2013 government creates some amendments in income tax

rule and regulation for the industry; that’s why a little bump in consistency has reveal in

this 2 year. We also observe a good consistency in between years (2005-2010); so we

score them up with 1.

IAS-18: revenue from sale of goods is consistently maintained as follow consistently

across the years so we score them with 1 –

Revenue is recognized for local sales of Pharmaceuticals Drugs and Medicines, Agro Vet

Products and Pesticide Products at the time of delivery from depot and Exports of

Pharmaceuticals Drugs and Medicines at the time of delivery from Factory Go down

IAS-18: Dividend income is recognized by the companies across the years when the right

to received payment is established. So we score the consistency and comparability with 1

IAS-18: interest income is recognized by the companies across the years when accrued

on a time proportion basis. So we score the consistency and comparability with 1

IAS-21: foreign exchange transaction denominated in another currency is translated into

taka from foreign currency at the each year end by using the current rate rather than using

spot rate or average rate. This practice is consistently followed by companies over 9 year

; so we score them with 1

IAS-7: cash flow statement is prepared by the companies in direct approach up to 2010

and later “in 2011 C8” and “in 2013 C7 and C9” adopt indirect approach to record cash

flow transactions. So inconsistency arises in 2011 and 2013 which hamper comparability

with previous year FSs as well as across industry firms.

P a g e | 125

IAS-33: EPS is calculated as per as IAS-33 guided way over the 9 year with a persistent

manner. So we assign 1 to all years

On an average comparability across in the respective IAS in overall years is demonstrated in

graph-

IAS title Comparability score( on average over years)

IAS-1 1IAS-16 1IAS-16 0.946282967IAS-2 1IAS-2 1IAS-2 1IAS-2 1IAS-12 0.974436032IAS-18 1IAS-18 1IAS-18 1IAS-21 1IAS-7 0.96025633

IAS-33 1Source: self-calculation

Graphical look:

0.910.920.930.940.950.960.970.980.99

11.01

Comparibilty score

Comparibilty score

P a g e | 126

Now we want to look over comparability across years in respect of overall IAS (underconsideration) among the 9 companies---

Graphical outlook:

0.95

0.96

0.97

0.98

0.99

1

1.01

2005 2006 2007 2008 2009 2011 2012 2013 2014

Comparbilityaross years

Comparbilityaross years

Year Comparabilityacross years

2005 12006 12007 12008 12009 12011 0.982012 12013 0.972014 0.97

P a g e | 127

Findings:

Excellent comparability: Since comparability across companies with IAS compliance isranged in between 94-100%

Excellent Comparability across years: Since comparability across years with overall IAScompliance is ranged from 97-100%

The more consistency in first adopted IAS the more the comparability will be amongfirms in case of comparing financial statements , annual report , and audit reports

6.7.2. Decision Making: About Hypothesis 3

H1: IAS compliance in consistent manner and comparability of financial statements amongselected companies has a positive relation. (Supported by the limited and short analysis

and has been verified as true)

H0: IAS compliance in consistent manner and comparability of financial statements amongselected companies has a negative relation (proved wrong)

P a g e | 128

Chapter 7FINDINGS, RECOMMENDATIONS AND CONCLUSIONSTHIS CHAPTER WILL COVERS THE FOLLOWING THINGS:

1. Report down the major findings of the detailed analysis2. Forecast the consequence of those finding3. Positive and negative aspect detected in finding4. Best performing companies based on findings5. Recommendation for lower positioned firms in the light of findings

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7.0. Major Findings

IAS -1 compliance:

In preparation Consolidated Financial Statement companies in sample

ensure 85-95% compliance

In preparation Cash Flow Statement companies in sample ensure 77.5-

92.5% compliance

In preparation Comprehensive Income Statement companies in sample


In preparation Statement of Change in Equity companies in sample


In maintaining general provisions of IAS-1 companies in sample

ensure 62.5-72.5% compliance

Dispersion of compliance score in different part of IAS-1 compliance

less.

Cash flow item compliance with IAS-1 in total compliance

of all sample companies is 22%

Statement of change inequity compliance with IAS-1 in

total compliance of all sample companies is 22%

General compliance with IAS-1 in total compliance of all

sample companies is 16%

Consolidated financial statement item compliance with IAS-

1 in total compliance of all sample companies is 20%

Comprehensive income item compliance with IAS-1 in total

compliance of all sample companies is 20%

IAS-16 adoption through using different depreciation method has influence on

profit , PP&E turnover and tax return:

P a g e | 130

Finding in simulated analysis conducted for straight line depreciation

method are as follow-

Easy to calculate tax ( more transparent view of profit

if tax is kept in a consistent level )

More constraint profit ( NI) over years

Easy to calculate and understandable

Good PPE turnover up to a year before the end of

useful life

Encourage comparability of profit across year

Finding in simulated analysis conducted for diminishing balance

depreciation method are as follow-

PPE turnover up to the end of PPE useful life

May generate SV ( salvage value )which add some profit

into profit of the year in which the SV is sold at market

price

Inconsistency in tax return ( although looked like

consistent( 5-10% inconsistency ) in case of increasing or

decreasing revenue situation)

Inconsistency in profit in successive year during life span of

PPE

Comparability of profit across years is somehow

compromised by 5-10%

Majority of firm in the industry follow straight line depreciation

method due to it is consistent in nature and straight forward.

IAS compliance in consistent manner and comparability of financial statements

among selected companies has a positive relation.

Major findings of this analytical part is given in epitomized form bellow-

Excellent comparability across IASs: Since comparability across

companies with IAS compliance is ranged in between 94-100%

P a g e | 131

Excellent Comparability across years: Since comparability across years

with overall IAS compliance is ranged from 97-100%

The more consistency in first adopted IAS the more the comparability will

be among firms in case of comparing financial statements , annual report ,

and audit reports

7.1. Forecast the Consequence of those Findings

Companies are increasingly complying with IAS ; so we can predict in future

companies will became totally accustomed with IAS compliance

If companies consistently follow the first adopted uniformly the comparability

among industry firm will increase in future which will reduce confusion and

suspension for investor , shareholders and other concerned authorities ; who

usually analyze accounting information of the companies. In future we can predict

a good internal and external comparability among industries

7.2. Positive and Negative Aspect Detected in Finding

Positive aspects: Companies follow IAS in preparation of financial statement and ensure

major requirement of IAS-1. So financial statement demonstration is done in an

transparent way with 89% IAS-1 compliance

Negative aspect: Some of the firm break consistency of firstly adopted IAS thus tousle

situation arise in comparability. Due to government interference and frequent change in

national accounting policies level of consistency and comparability are also beaked down

frequently.

Companies properly follow most of the guideline FS presentation but somehow fight shy

some general IAS provision due to obsolesce in this industry or elimination done by

ICAB or contingent situation or firm’s negligence.

P a g e | 132

7.3. Best Performing Companies based on Findings

Good Performer in IAS Compliance Related Issues

Company codes in analysis Company name

C1 Square Pharmaceuticals

C2 Incepta Pharmaceuticals

C3 Beximco Pharmaceuticals

C4 IBN SINA Pharmaceutical Industry Ltd.

C5 ACI Ltd

C6 Popular Pharmaceuticals Ltd. (PPL)

C7 Delta Pharma Ltd

7.4. Poor Performing Companies Based on Findings:

Comparatively Poor Performer in IAS Compliance Related Issues

C8 Sun Pharmaceutical (Bangladesh) Ltd

C9 Radiant Pharmaceuticals Ltd

7.5. Recommendation for Lower Positioned Firms in the Light of Findings

C8 and C9 scored less comparatively in general provision compliance of IAS-1 and they

switch from one depreciation method to depreciation (straight line to declining balance

method) in between 2011-2014. So these two firm should –

1. Go back to straight line depreciation; because most of the firms in the

pharmaceutical industry exercise straight line depreciation; to ensure

comparability of their financial statement and reporting.

P a g e | 133

2. Should follow general provision that has been adopted by ICAB and

industry itself.

7.6. Conclusion:

IAS compliance ensures a discipline way to manage accounting matters through reducing

differentiations in treating accounting issues; thus ensure tranquility in whole world’s accounting

system. In Bangladesh a major part of industry is chemicals industry and pharmaceutical industry

is a major share of it. So this industry’s financial reporting should be done in accordance with

Bangladesh financial reporting standards which are national customized form of IFRS.

Throughout the study we realize that this industry is maintain a good compliances of IAS in

general and it is also expected that in near future due to globalization and necessity of single

accounting practice all the industry firm will compelled to follow IAS /BAS in every accounting

aspects.

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BIBLIOGRAPHY

THIS PART INCLUDES:

Demonstrating workings through PC screen shoot and cheek list (that are notpresented in analysis part due to limitation of space.)

Proving reference of all source of data used while conducting the study throughHarvard Referencing System

Extension of Abbreviations that are used in whole study

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BIBLIOGRAPHY

THIS PART INCLUDES:




P a g e | 134

BIBLIOGRAPHY

THIS PART INCLUDES:




P a g e | 135

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Part 2-Workings

PC calculation snapshots

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Part 2-Workings


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Part 2-Workings


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Other ruffs/ scratch calculation that are made and used indirectly in analysis part

IAS compliance in case of presenting financial statement in the year 2013

Name of itemsrelevantIAS C1 C2 C3 C4 C5 C6 C7 C8 C9 Mean

Balance sheetitem

PP&E IAS 16 1 1 1 1 1 1 1 1 1 1

Investment inshare IAS 28 1 1 1 1 1 1 1 1 1 1Intangibleasset IAS 38 1 1 1 1 1 1 1 1 1 1

Inventories IAS 2 1 1 1 1 1 1 1 1 1 1Spares &Supplies IAS 2 1 1 1 1 1 1 1 1 1 1AccountsReceivable IAS 39 1 1 1 1 1 1 1 1 1 1Loans,

Advances andDeposits IAS 39 1 1 1 1 0.5 0.5 1 0.5 0.5 0.7778Short TermInvestment IAS 7 1 1 0 0.5 0.5 0 1 1 1 0.6667Cash and CashEquivalents IAS 7 1 1 1 1 0.5 1 1 1 1 0.9444

Issued ShareCapital IAS 32 1 1 1 1 1 1 1 1 0 0.8889

SharePremium IFRS 2 1 1 1 1 1 1 1 1 1 1

CapitalReserve onMerger IAS 1 1 0 0 0 0 0 1 0 1 0.3333RevaluationSurplus IAS 16 1 1 1 1 1 1 1 1 1 1Fair ValueGain onInvestment IAS 40 1 0.5 1 1 1 0.5 0.5 1 1 0.8333Retained

Earnings IAS 1 1 1 1 1 1 1 1 1 1 1Total

compliancescore of 9companies 13.444

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Number of item inbalance sheet part

100%compliance

score

Companiestotal

compliancescore

% ofcompliance Comment

18 item 18 13.44444444 74.69135802Goodcompliance

IAS compliance in case of presenting Financial statements( income statements )in the year end December 31 2013

Name of itemsrelevantIAS C1 C2 C3 C4 C5 C6 C7 C8 C9 Mean

Cost of goods sold IAS 2

Administrative Expenses IAS 19

Selling, Marketing andDistribution Expenses IAS 1

Other Income IAS 1

Finance Cost IAS 23

Contribution to WPPF & Welfare Funds IAS 1

Current Tax IAS 12

Deferred Tax IAS 12

Other Comprehensive Income IAS 1

Fair Value Gain on Investment in ListedShares IAS 40

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Part 3-Extensions of Abbreviations

FS=financial statement

CF= cash flow

ICAB= Institute of Certified

Accounting of Bangladesh

BFRS= Bangladesh Financial

Reporting Standards

BAS= Bangladesh Accounting

Standards

GAAP= Generally Accepted

Accounting Principles

C1: Square Pharmaceuticals

C3= Beximco Pharmaceuticals

C4= IBN SINA Pharmaceutical

Industry Ltd.

C5= ACI Ltd

C6= Popular Pharmaceuticals Ltd.

(PPL)

C2= Incepta Pharmaceuticals

C7= Delta Pharma Ltd

C8= Sun Pharmaceutical

(Bangladesh) Ltd

C9= Radiant Pharmaceuticals Ltd

International Accounting Standard compliance analysis on nine pharmaceutical industries in...

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