The quality of financial statements and statutory audits have become a global focus of discussion following major accounting scandals at the beginning of the millennium (Blavoukos et al., 2013). 2015) examined the failure of the Anglo-American model of audit oversight in the Greek context due to conflict with local political-economic norms. We tried to analyze elements of the political-economic context within which the FRC was established.
The extent of politicization is also ensured in the composition of the appellate authority. The allocation of the conventional amount of resources in the moment of clear inefficiency of previous regulators due to resource scarcity indicates the intention of the political-economic level to prevent the body from taking up innovative. The rest of the paper is organized as follows: Sections two and three focus on audit quality in Bangladesh and literature on the emergence and impact of independent audit oversight arrangements.
The emergence and impact of independent audit oversight bodies globally Audit quality became a central issue after the collapse of companies at the turn of the century (Blavoukos et al., 2013). Such a position of the professional audit body can be an obstacle to the successful operation of the supervisory body. Members of the only other significant group of professional accountants, viz. Institute of Cost and Management Accountants of Bangladesh (ICMAB), could.
The accounting codes (meaning structure) included such a provision that financial resources to be generated from financial audit services (dominance structure) were allocated exclusively to the members of ICAB, i.e. the Chartered Accountants (CAs).
Methodology
The organizational field transforms developed socio-political norms and values into field-specific directions, which individual organizations within the field later follow. The framework recognizes the possibility of changing an institution through resistance or the conscious efforts of well-informed organizations. Their innovative practices can modify field-level criteria and practices and, eventually, the political-economic context.
But the framework also identifies that innovative practices can be constrained by field-level organizational practices or even higher-level factors. Understanding the context within which the FRC operates is key to understanding the body's potential effectiveness in improving audit quality. Our paper sheds light on field-level practices and political-economic criteria that constrain innovative practices.
The FRC needs to move beyond the institutionalized perception of the ineffectiveness of financial regulators in Bangladesh and will need to act as an innovator in breaking away from institutionalized practices. Structuration theory will help us assess the possible effects of contextual barriers that limit FRCs in introducing structural changes. How do you think the provision might affect the quality of the audit?” Political scientists have provided powerful insights into the political strategies Bangladeshi politicians use to propose global reforms.
An interview with the retired CB secretary was arranged to understand the government's point of view.
Findings and Discussion
Low resource allocation to the regulatory bodies, together with politicization, helps to erode the potential of the bodies to bring about structural changes. We believe that the regulators of financial reporting, namely the Registrar of Joint Stock Companies (RJSC), BSEC, Central Bank, Insurance Development and Regulatory Authority (IDRA), ICAB, and the Monitoring Cell of the Ministry of Finance, the organizational field for VVK. One of the factors that influenced such composition was the negotiation of ICAB and ICMAB with the government (Bala, 2017).
Huque and Rahman (2003) identified post-retirement contractual appointments of bureaucrats as a symptom of alliance between politicians and bureaucrats. Interestingly, the FRA specifically mentions that you are a "retired secretary" as one of the qualifications to be the chairperson of the authority. The bureaucrats' statements point to the relationship between bureaucrats and politicians and support the contention of Jahan and Shahan (2008).
While, according to the framework, FRC's innovative practices as effectiveness in improving audit quality can positively impact moving to higher levels, we find that bureaucratization of the board prunes the bud by leaving the body susceptible to political intervention. According to structuring theory, the norm of the political structure of the oversight body can also have a multitude of effects on the statutory audit industry. Even if the introduction of FRC raised concerns about audit quality, at least in some firms, the operational inertia of the body could change the interpretation of the regulation.
New legitimation may prevent firms from allocating resources for quality improvement, leading to the re-establishment of the pre-FRC structure. Furthermore, the operational inertia of FRC may restore partial reliance on ICAB for disciplinary actions leading to the re-establishment of the pre-FRC dominance structure. One of the firm partners who had strong political affiliations felt shy just for a letter.
The minister said that he knew the firm's key partner as a very good man […] He asked that the case be handled gently. The distribution of human resources based on the trend analysis describes the lack of will at the political-economic level represented by various ministries to empower the FRC to initiate change in the regulatory regime. Identical strategies to those mentioned by Sakib (2020) were adopted in the case of ACC.
The WB also expressed concern that a government body formed in this way could create a bureaucratic atmosphere and impair the pace of improvement of the auditing profession (World Bank, 2015, p. 52). Tensions in the audit environment are found in our interview regarding the formation of the FRC.
Conclusions, Implications, and Limitations
All respondents strongly emphasize the impartiality of the body's operation as the key to eliminating irregularities in financial reporting. 113 numerous stakeholders can create a bureaucratic atmosphere and impede the current pace of industry development. Considering the state of corporate governance and political-economic indicators, the donor who established the independent control arrangement proposed the establishment of the body only after the expected development of the prerequisites.
We have observed that the subsequent recommendations made six months before the establishment of the board are completely ignored as there is a growing demand from investors for a regulatory audit body. Strategic responses such as avoidance and manipulation of isomorphic pressure were confirmed in the case of another Bangladeshi regulatory body by Sakib (2020). This paper draws the attention of global accounting and auditing regulatory authorities to the fact that policy reforms without careful consideration of the local political-economic context of a country can lead to a strategic response from the local political/regulatory domain, changing mere rhetoric .
To accurately understand the influence of political economic factors on regulator functionality, a quantitative analysis of the effects of independent inspection on earnings management or audit quality can be performed. A study of the impact of audit committee characteristics on the relative size of purchases of non-audit services. Diffusion and Institutionalization of Public Sector Accounting Reform in Less Developed Countries: A Comparative Study of the Central Governments of Nepal and Sri Lanka.
Europeanisation, independent bodies and the empowerment of technocracy: the case of the Greek audit oversight body. From dominance to alliance: shifting strategies and accumulation of power through the bureaucracy in Bangladesh. Institutionalizing the Cash Basis International Public Sector Accounting Standard in the Central Government of Bangladesh: An Example of Delay and Resistance.
One size does not fit all: an analysis of the anti-corruption approach of the Anti-Corruption Commission (ACC) in Bangladesh. What are the contributions of the FRC to the audit profession in the last four years? Do you think the FRC can withstand political pressure from the firm end in all cases.
