A Document Verification Code (DVC), a numerical unique number/ code auto-generated by the document verification system (DVS) (software adopted by the Institute of Chartered Accountants of Bangladesh (ICAB)) upon inserting few legal information and audited figures of a company, is used in the auditors' report and audited financial statements at the time of signing thereof. Some of the selective figures in the financial statements are verifiable with the records in DVS by the relevant stakeholders like regulators (FRC, RJSC, ICAB etc.), NBR, Banks/FIs to justify the unique audited copy to all stakeholders/users. By using this code after audit of a company for a particular period, none can generate or produce another set of audited financial statements for availing undue benefits therefrom. So, the DVC is an entrance code of the company for that particular period in order to verify the data between the audited information and DVS and to confirm the uniqueness and originality.
The main objective of such a DVC is to ensure a single and unique audited financial statement of a company for ensuring uniformity, originality and transparency at all levels. The specific objectives are: a) Stopping generation of multiple separate auditors' reports with audited financial statements for the same period in the way it is required for undue benefits. The DVC helps avert the existing evil-practice of showing loss or less profit for tax purposes and showing profits significantly for banks/FIs for availing credit facilities using different sets of financial statements violating the legal provision in the Companies Act 1994. b) Providing a uniform, unique & original set of audited financial statements for all stakeholders giving the real picture under the legal provision. c) Closing the door on non-compliant auditors, tax evaders and fraud credit appliers so that a sound and transparent practice may take place in the corporate sector, d) An effort of transparent and fair audit process instead of undue signature in the name of audit practised by non-compliant auditors as required by owners and tax lawyers for the undue benefits as stated above, e) Contributing to increase of tax collection through effective and efficient quality audit instead of unjustified and unaudited signature of non-compliant auditor.
The above objectives are the requisite indicators that the government of a country follows in judging the auditors. We generally observe that the professional bodies of a developing country like Bangladesh always follow the compliance framework of other countries ignoring the practical situation of their own. In case of such adoption of DVC, the ICAB has its own thoughtful and innovative idea matching our practical problem and required solution. It has been definitely an outstanding and contemporary step for development of the audit process and practice in the country.
Envisaging the above objectives and with a view to ensuring transparency in the audited financial statements, the regulators like Financial Reporting Council (FRC), Bangladesh Bank (BB), National Board of Revenue (NBR) and Bangladesh Securities and Exchange Commission (BSEC) have widely accepted the DVC and as such, they have advised & instructed their officers and respective member organisations to verify the financial statements using the DVC.
It was really very cumbersome to follow the only one set of audited financial statements due to lack of taking these from one basket by all stakeholders. The DVS has kept these in one basket from where all stakeholders can verify their copy using the key of DVC. This system will help (a) comply with the legal provision on audit in the Companies Act, 1994, (b) save the auditors from the allegation of evil-audit practices, (c) protect the corporate sector from the fraudulent activities for tax & credit facilities, and (d) ensure the justice for all. It does not mean that quality audit was not in practice at all. Some of the auditors were engaged in such malpractices in joint collaboration with tax lawyers and owners of companies. Those auditors would put simply signature on auditors' reports and financial statements without any verification through completion of a rigorous audit process. Another group of similar auditors did the same for another purpose.
As stated, the audit is considered a simple work of signature only, based on ongoing illegal practices, on the financial statements and as such, many tax lawyers say that the cost of signature of auditors has increased this year (the year of adoption of DVC). It is very unfortunate and frustrating that we, as tax lawyers, fail to understand the scope, process and responsibilities of auditors. Audit is a long process of verification by (a) planning based on the assessed internal control and risks, (b) addressing the responses to those assessed internal control and risks by an audit programme, (c) conducting the tests in the field with documentation, (d) reviewing the compliance with law and standards in recognising, measurement & disclosures, (e) reviewing the adequacy & appropriateness of compliance by supervisors & engagement partners and finally (f) designing the completion memorandum as conclusion for reporting. The above processes entail huge cost which must be met up from audit fee. In many cases, the audit fee does not cover the cost and auditors fail to ensure the required quality in conducting the audit assignment. It could be another argument that proven quality is the top priority for improvement of audit fee to an expectable level. Whether the quality will ensure the audit fee or audit fee will ensure the quality is a separate debate. However, the ICAB has taken a lot of steps for quality audit framework. Some of the mentionable initiatives are (a) training and workshop on quality audit process, documentation and preparation of working papers, (b) review of audit working papers annually and requirement basis, (c) adoption of audit software and training on it, (d) CPD on different contemporary issue to keep the members update on professional issues, and (e) impose penalty and suspension based on the degree of non-compliance. It is obviously true that audit firms do not charge higher, even they do not comply with the minimum fee as prescribed by ICAB and the ICAB is not strict on this as well because of giving comfort to the clients and coming back under the legal framework of audit. The audit fee in the country is far less than that in any of the comparable emerging countries like India, Pakistan and Sri Lanka. So, some quarters who seek waiver of DVC citing the excess charge of audit fee do it to divert the audit from the legal framework and keep a hole in the system for undue benefits. This type of accusation must be stopped, otherwise the total corporate system will be sick and we don't have any other alternative to get rid of it without DVC.
The writer is a Director of Basu Banerjee Nath & Co., a Chartered Accountant firm.