balance sheet reporting practices by listed companies of bangladesh

Electronic copy available at: http://ssrn.com/abstract=1138104

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Balance Sheet Reporting Practices by Listed Companies of

Bangladesh

Mohammad Farhad Hossain*

Mohammad Moniruzzaman Siddiquee**

Abstract: This paper tries to find out balance sheet reporting practices by the listed companies in Bangladesh.

Among the non-financial companies, the most widely used balance sheet style follows the equation

as [NCA + (CA – CL) = E + NCL], (83 companies, 34%); followed by the style with equation [E +

NCL = NCA + (CA – CL)], (45 companies, 19%). Variation in balance sheet reporting is none in

financial sectors like banking, and insurance due to regulation. The variation is evident in non-

financial sectors as very high, even within the sector. Variation in use of balance sheet style is very

high in sectors like engineering, food and allied, and pharmaceutical. Both engineering and

pharmaceutical companies follow seven different types of balance sheet styles; the figure is six for

food and allied sector. Most of the listed companies of Bangladesh present their balance sheet in

English language (226 companies, 93%). 31st December is the most widely used balance sheet

reporting date (127 companies, 52%) followed by 30th

June (97 companies, 40%). Most of the

companies use report format (203 companies, 84%). In the balance sheet assets are arranged as fixed

assets first with least liquid first and more liquid last, then current assets second with less liquid first

and most liquid last.

INTRODUCTION

It is true that comparisons of financial statements are vital to significant financial and operating results,

and to the determination of credit indices and cyclic trends. Choi and Levich (1991) in a survey of

institutional investors, corporate issuers, investment underwriters and market regulators in Germany,

Japan, Switzerland, the UK and the US concluded that the comparability of financial statements is

important to investors. However, the lack of uniform balance sheets and uniform principles has

questioned the purpose of financial reporting as evidenced by Choi and Levich (1991) that accounting

differences may affect balance sheet items and measures of capital adequacy or credit worthiness that

indirectly affect managerial decisions and firm valuation. As there are wide differences in financial

reporting around the world, discussions are going on about the harmonization of financial reporting from

regional and international paradigm. The pressure for international accounting harmonization is

constantly increasing because the products of accounting in one country are used in various other

countries (Nobes and Parker, 2002). Accounting harmonization has been viewed by its proponents as an

effective means of facilitating cross-border economic activities and of reducing overall costs of

compliance with different national accounting standards (Rivera, 1989; Choi and Levich, 1990; Fleming,

1991). However, opposing the idea accounting academics like Briston, 1978; Samuels and Oliga, 1982;

Ndubizu, 1984; Hove, 1986, 1989; Taylor, 1987; Goeltz, 1991; Hoarau, 1995 argued that accounting

harmonization represents an imposition of Western accounting concepts, with a particularly strong

Anglo-American bias, on settings in which these concepts are inappropriate and, consequently, harmful.

* Associate Professor, Department of Business Administration, Jahangirnagar University, Savar, Dhaka-1342, Bangladesh ** Lecturer, Department of Business Administration, Jahangirnagar University, Savar, Dhaka-1342, Bangladesh

Electronic copy available at: http://ssrn.com/abstract=1138104

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Another criticism is that the fact that accounting is flexible in nature and can adopt to different number of

situations but if accounting standards are harmonized it is believed that they would not be flexible

enough and the standards set internationally cannot possibly fit for the wide range of national

circumstances, legal systems, stages of economic development, and cultural differences. Harmonization

of accounting standard could prove dangerous to the companies as the standards could cut profits and

inject volatility into the balance sheets of the companies (Parker, 2002). Despite the debate, it can easily

be inferred that if all companies use the same definitions and rules to communicate their financial

accounting information, not only the effectiveness of accounting information as a communication device

will be increased, but also user’s costs of understanding the data will be reduced.

A solid understanding of domestic reporting practices will help us move on to regional and international

accounting harmonization. Voon (undated) reported that as globalization works its way through local

economies via deregulation and modern market reforms, there is a need for the convergence of local

financial reporting standards with International Accounting Standard (IAS). Thus a study of country-

specific reporting practices may create an impact on the discussion on the accounting harmonization

attempt. Our study aims to explore the balance sheet reporting practice by the listed companies in

Bangladesh. The objective of this study is to find out the most widely used balance sheet reporting in

Bangladesh, which includes reporting formats, marshalling of assets, language of communication, etc.

around different industries or sectors classified by the Dhaka Stock Exchange (DSE) Ltd. The findings of

this study can be useful for the study of developing market accounting; and of course for any attempt of

accounting harmonization.

The discussions in this paper are arranged in following way. First, some literatures are discussed on the

issue of balance sheet reporting practices in different times and different regions. Then, in the subsequent

sections, methodology of this paper is discussed. A brief overview of the regulatory environment of

balance sheet reporting is discussed in the next section. Then, findings of this paper are discussed in the

next section followed by conclusions.

BALANCE SHEET REPORTING PRACTICES

As late as May 31, 1865, the annual report of the Boston and Maine Railroad exhibited in place of the

modern balance sheet a “Balance Account, after closing books.” Three classes of debit accounts

appeared: Construction Accounts (the cost of road and equipment), Property Accounts (supplies such as

wood, oil, iron rails, ties, and coal), and Asset Accounts (cash, notes, bills, prepaid insurance, and sundry

receivables). Two classes of credit accounts were brought out in strong relief: the Capital Stock Account

and Liabilities. A General Reserve Account (the undivided profits to date) was classified as a liability and

used to balance the statement. Before that their annual report, as of September 30, 1856, contained a

“Statement of Liabilities and Assets” with accounts classified in the order suggested by the title (Nelson,

1947).

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Dicksee (1909) stated that under the Italian system of bookkeeping, which is still practiced in some old-

fashioned merchants' houses, it is the custom at every balancing, after the nominal accounts have been

closed, to transfer the balances of the real and personal accounts into one account, usually called in

England and the United States the ‘Balance Account,’ and in France the ‘Balance de Sortir,’ or ‘closing

balance’.” Although in some respects the “balance account” was similar to the “balance sheet”;

nevertheless, some fundamental differences were appearing – differences that involved more than

bookkeeping procedures, statement form, and terminology.

Sprague (1913) expressed his belief concerning the balance sheet’s importance stating that the statement

“may be considered as the groundwork of all accounting, the origin and terminus of every account” and

placed the assets in the left-hand register, and insisted that “the rights of others, or the liabilities, differ

materially from the rights of proprietor.” Although some companies issued annual reports at that time but

did not include balance sheets or, if balance sheets were included, the financial information was often

minimal. Even, at the beginning of the 20th century most companies did not classify balance sheets, and

in the statements of the few companies that did, there was no consistency in the grouping of items.

Dicksee (1909) warned that “nine out of ten published balance sheets include items under ‘Assets’ and

‘Liabilities’ which are certainly not either one.” Canning (1929) became disturbed over the differences in

definition and accounting practice and gave evidence of a deep conviction that a study of texts would not

bear sufficient fruit to yield a harvest of adequate understanding.

Foulke (1968) notes that it was after 1900 that public accounting firms commonly used the terms ‘current

assets’ and ‘current liabilities’. Earlier Foulke (1945) writes that the classification of current assets is

undoubtedly the most important classification in a balance sheet, as current assets largely determine the

going solvency of a business concern. Despite the lack of significant balance sheet classifications at the

beginning of the century, by 1940 the basic format for reporting current assets on the balance sheet had

been adopted. Instead of following British precedent established under the Companies Acts, the

American (or Continental Europe) balance sheet had its own characteristics, especially in regard to the

classification and position of current assets (Normand and Wootton, 2001). Although there was little

need for classified balance sheets immediately after the Civil War, it was impossible not to have them by

1940, because of the business world that was transforming from sole proprietorships with little need for

financial statements to corporations with regulatory requirements to provide basic financial statements to

their different stakeholders.

Besides current items, several accounting historians (Claire, 1945; Schiff, 1978; Vangermeersch, 1970,

1971/72, 1986; Reed, 1989) in investigating evolution of financial statements have concentrated on the

overall development of financial statements or upon the presentation and valuation of long-term assets on

the balance sheet. Vangermeersch (1979) examined in depth the changing role and format of the balance

sheet over the years.

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Balance sheet presentation style differs from country to country with a few exceptions. For example, the

balance sheet in Japan is divided into sections on assets, liabilities, and net assets, and the section on net

assets is divided into owners’ equity and items other than owners’ equity. Owners’ equity is further

divided into paid-in capital, capital surplus, and earned surplus. In the UK, the vertical format balance

sheet typically shows two years figures, with a single column for each year. In the US, they tend to split

each year into two or three columns, with sub-totals for assets, liabilities and equity (they may call it

“capital”) in the right hand column; in some ways this makes it easier to see how the balance is arrived

at. However, European Union, Russia, and Australia have moved toward IFRS (International Financial

Reporting Standards) which has produced balance sheet with the items in a slightly different order, with

the capital or equity shown at the top of the liabilities, rather than at the bottom to balance out total assets

with total liabilities. Also some of the terms that appear in the balance sheet and profit and loss account

are changing: debtors and creditors, for example, will appear as receivables and payables. The move to

IFRS has also highlighted how there were differences in the way certain figures for the balance sheet

were calculated in different countries. Because of historical differences in the utility of accounting

information, each country attributes varying degrees of importance to each particular financial statement.

Between Continental and Anglo-American accounting systems there is a substantially different

understanding of the accounting function (Ding, Stolowy, and Tenenhaus, 2003). For example, the

Continental view is that the basic function of accounting is to provide evidence that a firm has complied

with judicial requirements and satisfied the various demands of tax authorities, macro-administration

bodies, investors, creditors, employees, etc. In Anglo-American countries, however, the purpose of

accounting function is seen more as the disclosure of economic information concerning an enterprise,

where, in most cases, financial ownership and operational management are separate.

METHODOLOGY

To understand how listed companies are disclosing information on specific issues (in our case, assets,

liabilities and equities), we reviewed the publicly available information (annual report) produced by 243

companies of different sectors enlisted with the DSE. The sample includes companies from all of the

sectors of DSE: Bank (25), Cement (8), Ceramics (4), Engineering (22), Finance and Investment (4),

Food and Allied (38), Fuel & Power (3), ICT (5), Insurance (26), Jute (3), Leasing (5), Leather (6),

Miscellaneous (13), Paper & Packaging (8), Pharmaceuticals & Chemicals (27), Services & Real Estate

(4), and Textile (42). The number in the parenthesis represents the distribution of companies under each

sector. We have excluded some firms due to the unavailability of annual reports. The annual reports for

each sample firm were obtained from the DSE.

To capture the practices of balance sheet presentation among the sample companies, we have identified

some issues, such as balance sheet style, asset marshalling, format of the balance sheet, balance sheet

date, Multinational/Local/Govt, Language (Bangla/English/Both). Balance sheet style implies basically

the presentation of accounting equation in the balance sheet. For example, a very common way of

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preparing balance sheet in the textbooks is: [CA + NCA = (CL + NCL) + E], where CA stands for current

assets; NCA, non-current assets; CL, current liabilities; NCL, non-current liabilities; and E, equity. CL

and NCL are put in parenthesis, because these two are disclosed in total. We had identified several styles

of balance sheet presentation using variations in accounting equation. These styles are available in

Appendix B. This paper explores the various accounting equations in the balance sheets.

Asset marshalling refers to the sequence of listing the assets in the balance sheet. Two very extreme way

of asset marshalling is: (a) liquidity approach, where assets are listed as most liquid assets first and the

least liquid assets last; and (b) non-current (block) approach, where assets are listed as least liquid asset

first and the most liquid asset last. A variation of these two extremes is also available in practice. A list of

such possible variation is available in Appendix C. This paper explores the use of such variation in asset

marshalling in Bangladesh.

There are two very well-known types of formats in balance sheet presentation – report format and

account format. This paper explores the use of formats by the Bangladeshi firms. We had considered

ownership of the firm as another important factor to understand the reporting of balance sheet. We had

categorized the ownership as: multinational, local, and state-owned (or Govt.). Lastly, we focus on the

language, which is used to present the balance sheet; and the balance sheet reporting date. Before going

into the findings of this study, a discussion about the regulatory environment of financial reporting in

Bangladesh, and regulatory framework for balance sheet deemed necessary for a better understanding.

REGULATORY ENVIRONMENT OF FINANCIAL REPORTING IN BANGLADESH

Financial reporting and disclosure requirements for the registered companies in Bangladesh are governed

by the Companies Act, 1994. Banking institutions’ disclosure practices are regulated by the Bank

Companies Act 1991, Bangladesh Banks (Nationalization) Order 1972, Bangladesh Bank Order 1972,

Bangladesh Shilpa Bank Order 1972, Bangladesh Krishi Bank Order 1972, and Bangladesh Shilpa Rin

Sangstha Order 1972. The disclosure practices of the insurance companies are guided by the Insurance

Act, 1938 and the Insurance Corporations Act, 1973. Besides statutory regulations, the Securities and

Exchange Commission (SEC), the Registrar of Joint Stock Companies, and the Institute of Chartered

Accountants of Bangladesh (ICAB) play an important role in shaping the disclosure requirements from

time to time.

The Companies Act, 1994 provides basic requirements for accounting and reporting applicable to all

companies incorporated in Bangladesh. The Act provides the requirements for preparation and

publication of financial statements, disclosures, and auditing, among other provisions. However, in most

cases, the Act lacks clarity with regard to statutory requirements on disclosures in the financial

statements of the incorporated companies. It is silent about either Bangladesh Accounting Standards

(BAS) or International Accounting Standards (IAS/IFRS).

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The SEC regulates financial reporting practices of listed companies. Listed companies are required to

comply with SEC accounting and disclosure requirements, despite inconsistencies with the requirements

of the Companies Act 1994. The SEC, in protecting investor interests, issues various rules that apply to

listed companies, including accounting and auditing requirements that, according to SEC Ordinance 1969

(Provision 2CC), supersede requirements set by the Companies Act. The Securities and Exchange Rules,

1987 require compliance with IAS/IFRS as adopted in Bangladesh, known as BAS.

The Bank Companies Act 1991 authorizes the Bangladesh Bank to regulate financial reporting by banks.

The Act prescribes the format of balance sheet and income statement, including disclosure requirements

that each bank must follow for regulatory reporting to the Banking Inspection Department of the

Bangladesh Bank. The same accounting and financial reporting rules are required to be followed by

banks in preparing financial statements for external users (World Bank, 2003). The Act mandates

reporting formats and disclosures based on BAS 30, which is similar to IAS 30. However, the Act is

silent about other BAS, and the result of compliance with BAS by banks is mixed.

Financial reporting and disclosure practices of insurance companies are regulated by the Insurance Act

1938. The Act specifies that insurance companies should submit their company’s annual audited financial

statements to the Chief Controller of Insurance within six months from the balance sheet date. However,

the Act does not mandate compliance with BAS. In practice, insurance companies often do not follow

BAS.

Income Tax Ordinance of 1984 also significantly influences the financial disclosure and reporting

practice of companies in Bangladesh. Many business entities design their accounting system as per the

requirements of the income tax law. Although there is no legal requirement on observance of tax

accounting rules in external financial reporting, those who prepare and audit financial statements

generally ensure that the accounting treatments that are acceptable to the taxation authorities are used not

only for tax reporting purposes but also for preparing the general-purpose financial statements.

REGULATORY FRAMEWORK FOR BALANCE SHEET REPORTING

Bangladesh Accounting Standards (BAS) 1 (ICAB, 2004), which is a localized re-explanation of

International Accounting Standard 1, explains the presentation of financial statements in details. As per

Para 49, balance sheet should be presented at least annually. Regarding the classification of assets and

liabilities, Para 53 of BAS 1 suggests each enterprise to determine, based on the nature of the operations,

whether or not to present current and non-current assets and current and non-current liabilities as separate

classifications on the face of the balance sheet. Para 55 allows an enterprise to show its net assets. Para

66 provides a list of items, which should be included in the balance sheet as line items. These items are:

(a) property, plant and equipment; (b) intangible assets; (c) financial assets (excluding amounts shown

under (d), (f) and (g)); (d) investments accounted for using the equity method; (e) inventories; (f) trade

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and other receivables; (g) cash and cash equivalents; (h) trade and other payables; (i) tax liabilities and

assets as required by BAS 12 Income Taxes; (j) provisions; (k) non-current interest-bearing liabilities; (l)

minority interest, and (m) issued capital and reserves. Para 68 suggests no prescribed order or format in

which items are to be presented. The appendix of BAS 1 depicts one illustrative format of balance sheet

(Appendix A) which is labeled as Style 2 in this paper.

BAS 30 (ICAB, 2004) discusses the disclosures in the financial statements of banks and similar financial

institutions. As per Para 19 of BAS 30, the balance sheet should include following assets: (a) cash and

balances with the Bangladesh Bank and Sonali Bank; (b) Treasury bills and other bills eligible for

rediscounting with the central bank; (c) Government and other securities held for dealing purposes; (d)

Placements with, and loans and advances to, other banks; (e) Other money market placements; (f) Loans

and advances to customers; and (g) Investments securities; and the following liabilities: (a) Deposits from

other banks; (b) Other money market deposits; (c) Amounts owed to other depositors; (d) certificates of

deposits; (e) Promissory notes and other liabilities evidenced by paper; (f) Other borrowed funds.

FINDINGS

We have demonstrated our findings in order of balance sheet reporting date and language, balance sheet

presentation style and asset marshalling, and balance sheet format.

Date and Language of Balance Sheet Reporting

The listed companies in Bangladesh follow a wide range of reporting dates. 31st December is the most

widely used (127 companies, 52%) reporting date followed by 30th June (97 companies, 40%). A

complete list of number of companies in each sector is in Table 1. The column “modal sector” represents

the sector where most of the companies use a certain reporting date. For example, major sectors, which

use 30th June as balance sheet reporting date are, Food and Allied, Textiles, Pharma and Chemical, and

Engineering. Some non-traditional reporting dates are also in practice like, 31st March, 31st July, 31st

August, 30th September, and 31st October. Such non-traditional reporting dates accounts for 19

companies (8%).

Table 1: Balance Sheet Reporting Date of the Companies

Reporting Date Frequency Sector Modal Sectors

31-March 4 (2%) Textile (2), Engineering (1), Pharma & Chem (1) Textile (2)

30-June 97 (40%) Cement (2), Ceramics (4), Engineering (11), Finance

& Investment (1), Food & Allied (24), Fuel & Power

(1), ICT (3), Jute (3), Leather (3), Misc (4), Paper &

Pack (5), Pharma & Chem (13), Service & Real

Estate (1), Textile (22)

Food & Allied (24),

Textile (22), Pharma

(13), Engineering

(11)

31-July 1 (0.41%) Service & Real Estate (1) Service & Real Estate

(1)

31-August 3 (1%) Engineering (1), Food & Allied (1), Misc (1) Engineering (1),

Food & Allied (1),

Misc (1)

30-September 10 (4%) Cement (1), Food & Allied (3), Fuel & Power (1),

Leather (1), Textile (4)

Textile (4), Food &

Allied (3)

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31-October 1 (0.41%) Misc (1) Misc (1)

31-December 127 (52%) Bank (26), Cement (5), Engineering (9), Finance &

Investment (3), Food & Allied (10), Fuel & Power

(1), ICT (2), Insurance (26), Leasing (5), Leather (2),

Misc (7), Paper & Pack (3), Pharma & Chem (13),

Service & Real Estate (2), Textile (14)

Bank (26), Insurance

(26), Pharma (13),

Textile (14)

Total 243

Source: This study result

Most of the listed companies in Bangladesh present their balance sheet in English language (226

companies, 93%) having a large representation from Textile, Food and Allied, Pharma and Chemical, and

Bank (Table 2). Ten companies use only Bangla (all local companies) and seven use both the languages

including two multinational companies.

Table 2: Balance Sheet Language

Language Frequency Sector Modal Sector

Bangla 10 (4%) Bank (4), Insurance (1), Leather (1), Paper & Pack (3),

Pharma & Chem (1)

Bank (4)

English 226 (93%) Bank (19), Cement (8), Ceramics (4), Engineering (21),

Finance & Investment (4), Food & Allied (37), Fuel &

Power (1), ICT (5), Insurance (25), Jute (3), Leasing (4),

Leather (5), Misc (13), Paper & Pack (5), Pharma &

Chem (26), Service & Real Estate (4), Textile (42)

Textile (42)

Both Bangla

and English

7 (3%) Bank (2), Engineering (1), Food & Allied (1), Fuel &

Power (2), Leasing (1)

Bank (2), Fuel &

Power (2)

Total 243


Balance Sheet Presentation Style and Asset Marshalling

We have identified 12 possible styles of balance sheet presentation in practice, and labeled those from 1

through 12 (Appendix 2). This labeling is according to our judgment. Style 1 is the so called American

presentation style, which is widely found in the American text books, widely used by major American

companies, and taught in most business schools of Bangladesh. Very surprisingly no listed companies of

Bangladesh use this style. Because of strict regulatory framework, all banking companies use Style 10

and insurance companies, Style 11. One important aspect of Style 10 is, off-balance sheet items are

integral parts of the balance sheet. Another important financial sector balance sheet style is Style 12,

mostly used by leasing and investment companies. Among the non-financial companies, the most widely

used style is Style 6 (83 companies, 34%) followed by Style 5 (45 companies, 19%). A significant

number of companies (25, 10%) use Style 2 (Table 3).

Only few sectors have uniformity in balance sheet reporting style. As mentioned earlier, financial sector

companies have most uniformity in this regard (Table 4). Among the significant non-financial sectors,

only Cement sector companies have satisfactory uniform balance sheet styles (Style 5 and 6). The other

major sectors are in complete free choice of balance sheet style. For example, one very significant sector,

Pharmaceuticals and Chemical, follows Style 2, 3, 4, 5, 6, 8, and 9 (Style 6 is followed by the majority

companies) (Table 4). Same applies to other major sectors like, Engineering, Service, and Textile. The

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variation in the balance sheet presentation is basically because of rearrangements of the balance sheet

elements. Such rearrangements are depicted as balance sheet equations in table 7. From the different

rearrangements of balance sheet elements, focus of the balance sheet can be derived. Different balance

sheet styles found in this study focus on working capital, residual claim, net asset, long-term investment,

etc. either exclusively or in combination (Table 7).

We have labeled the asset marshalling in six different types (available in Appendix 3). Type 1 – fixed

assets first (with less liquid first and more liquid last) and current asset second (with less liquid first and

more liquid last) – is followed by most of the companies (184, 76%). This marshalling style is quite

contrary to the common practices by American companies. It should be mention that uniformity within

the sector is very high in choosing marshalling types.

The pair of marshalling type and balance sheet style is almost uniform in different sectors. For example,

when balance sheet Style 2, 3, 4, 6, 7, 8, and 9 are in practice marshalling Type 1 is uniformly used by all

the companies (Table 6). Only difference is Style 5 and 12; different marshalling types are used with

these balance sheet styles.

Table 3: Different Balance Sheet Presentation Styles Used by the Companies

Style No. of

Companies

Sector Modal Sector

1 0 - -

2 25 (10%) Ceramics (1), Engineering (3), Food & Allied

(4), ICT (1), Leather (1), Paper & Pack (1),

Pharma & Chem (3), Service & Real Estate (1),

Textile (10)

Textile (10)

3 8 (3%) Engineering (2), Food & Allied (3), Pharma &

Chem (1), Finance & Investment (1), Service &

Real Estate (1)

Food & Allied (3)

4 8 (3%) Engineering (1), Food & Allied (1), Misc (1),

Pharma & Chem (2), Textile (3)

Textile (3)

5 45 (19%) Cement (1), Ceramics (2), Engineering (9),

Finance & Investment (2), Food & Allied (6),

Fuel & Power (2), Leather (3), Misc (2), Paper &

Pack (4), Pharma & Chem (8), Service & Real


Engineering (9)

6 83 (34%) Cement (7), Ceramics (1), Engineering (6), Food

& Allied (18), ICT (4), Jute (3), Leather (2),

Misc (8), Paper & Pack (2), Pharma & Chem

(10), Service & Real Estate (1), Textile (21)

Textile (21)

7 1 (0.41%) Paper & Pack (1) Paper & Pack (1)

8 15 (6%) Ceramics (1), Engineering (1), Food & Allied

(6), Fuel & Power (1), Misc (2), Pharma & Chem

(2), Textile (2)

Food & Allied (6)

9 1 (0.41%) Pharma & Chem (1) Pharma & Chem (1) - ACI

Pharma

10 25 (10%) Bank (25) Bank (25)

11 26 (11%) Insurance (26) Insurance (26)

12 6 (2%) Finance & Investment (1), Leasing (5) Leasing (5)

Total 243


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Table 4: Sector-wise Balance Sheet Reporting Style

Industry Total Companies

under Study

Modal

Balance Sheet

Style

Frequency of

Modal Style

Alternative Styles in Use

Bank 25 10 25 -

Cement 8 6 7 5

Ceramics 4 - - 2,5, 6, 8

Engineering 22 5 9 2, 3, 4, 5, 6, 8

Finance & Investment 4 5 2 3, 12

Food & Allied 38 6 18 2, 3, 4, 5, 8

Fuel & Power 3 5 2 8

ICT 5 6 4 2

Insurance 26 11 26 -

Jute 3 6 3 -

Leasing 5 12 5 -

Leather 6 5 3 2, 6

Misc 13 6 8 4, 5, 8

Paper & Pack 8 5 4 2, 6, 7

Pharma & Chemical 27 6 10 2, 3, 4, 5, 8, 9

Service & Real Estate 4 - - 2, 3, 5, 6

Textile 42 6 21 2, 4, 5, 8

Total 243


Table 5: Asset Marshalling Practices

Marshalling Practices Frequency Sector Modal Sector

1 184 (76%) Cement (8), Ceramics (4), Engineering (22),

Finance & Investment (3), Food & Allied

(38), Fuel & Power (3), ICT (5), Jute (3),

Leasing (1), Leather (5), Misc (13), Paper &

Pack (7), Pharma & Chem (26), Service &

Real Estate (4), Textile (42)

Textile (42)

2 6 (2%) Leasing (4), Leather (1), Pharma & Chem (1) Leasing (4)

3 1 (0.41%) Paper & Pack (1) Paper & Pack (1)

4 25 (10%) Bank (25) Bank (25)

5 26 (11%) Insurance (26) Insurance (26)

6 1 (0.41%) Finance & Investment (1) Finance &

Investment (1)

Total 243


Table 6: Balance Sheet Presentation Styles with Asset Marshalling Practices

Balance

Sheet

Presentation

Styles

Asset

Marshalling

Practices

Frequency of

Combination

Sector Modal Sector

2 1 25 Ceramics (1), Engineering (3), Food &

Allied (4), ICT (1), Leather (1), Paper &

Pack (1), Pharma & Chem (3), Service &

Real Estate (1), Textile (10)

Textile (10)

3 1 8 Engineering (2), Finance & Investment

(1), Food & Allied (3), Pharma & Chem

(1), Service & Real Estate (1)

Food & Allied (3)

4 1 8 Engineering (1), Food & Allied (1), Misc

(1), Pharma & Chem (2), Textile (3)

Textile (3)

5 1 Cement (1), Ceramics (1), Engineering

(9), Finance & Investment (1), Food &

Allied (6), Fuel & Power (2), Leather (2),

Engineering (9)

11

Misc (2), Paper & Pack (4), Pharma &

Chem (7), Service & Real Estate (1),

Textile (6)

2 Leather (1), Pharma & Chem (1)

6 Finance & Investment (1)

6 1 Cement (7), Ceramics (1), Engineering

(6), Food & Allied (18), ICT (4), Jute (3),

Leather (2), Misc (8), Paper & Pack (2),

Pharma & Chem (10), Service & Real


Textile (21)

7 3 Paper & Pack (1)

8 1 Ceramics (1), Engineering (1), Food &

Allied (6), Fuel & Power (1), Misc (2),

Pharma & Chem (2), Textile (2)

Food & Allied (6)

9 1 Pharma & Chem (1)

10 4 Bank (25) Bank (25)

11 5 Insurance (26) Insurance (26)

1 Finance & Investment (1), Leasing (1) 12

2 Leasing (4) Leasing (4)


Table 7: Balance Sheet Equation

Sl. Balance

Sheet Style

Equation Comments

1 1 (CA + NCA) = (CL + NCL) + E Total investing and total financing focus. Investing at top;

residual claim at bottom.

2 2 NCA + CA = E + NCL + CL Total investing and total financing focus. Investing at top.

3 3 and 11 E + NCL + CL = NCA + CA Total investing and total financing focus. Residual claim

at top.

4 4 NCA + (CA – CL) = NCL + E Working capital, and long-term financing focus; residual

claim at bottom.

5 5 and 12 E + NCL = NCA + (CA – CL) Long-term financing, and working capital focus. Residual

claim at top.

6 6 NCA + (CA – CL) = E + NCL Working capital, and long-term financing focus. Long-

term investing at top.

7 7 (CA – CL) + NCA = E + NCL Working capital, and long-term financing focus.

8 8 [NCA + (CA – CL)] – NCL = E Net assets, and residual equity focus

9 9 E = NCA + (CA – CL) – NCL Residual equity, and net asset focus

10 10 CA + NCA = CL + NCL + E For banking companies. Off-balance sheet reporting

included.

Where,

CA = Current assets; NCA = Non-current assets; CL = Current liabilities; NCL = Non-current liabilities; E =

Equity


Balance Sheet Format

Under standard accounting conventions balance sheet may be presented in two formats: the report form

(vertical presentation) and the account form (horizontal presentation). We have labeled the former as

Format 1 and the latter as Format 2. The balance sheet is most often presented in report form, with assets

listed above liabilities and owners’ equity. In the account form of balance sheet the assets section is

placed on the left and the liabilities and owners’ equity sections on the right. In some countries, the UK

and Ireland for example, a ‘multiple-step’ format is used, with a list of subsets of the three main

categories of assets, liabilities and shareholders’ equity and identification of managerially useful subtotals

12

by subtracting other relevant subcategories of assets and liabilities (Ding, Stolowy, and Tenenhaus,

2003). Nobes and Parker (2002) found that vertical format is used in the United Kingdom whereas

horizontal format is dominant in France and Spain.

This study found 203 companies (84%) use report format; remaining 40 companies (15%) use account

format (Table 8). Only the insurance sector companies are the majority users of account format. No

multinational company uses the account format. Table 9 lists the combination of balance sheet style and

the balance sheet format. Style 6 and format 1 makes the highest number.

Table 8: Presentation Format

Format Frequency Sector Modal Sector

Report Format

(1)

203

(84%)

Bank (18), Cement (8), Ceramics (4), Engineering (19),

Finance & Investment (4), Food & Allied (35), Fuel &

Power (3), ICT (5), Insurance (1), Jute (3), Leasing (5),

Leather (6), Misc (13), Paper & Pack (7), Pharma &

Chem (26), Service & Real Estate (4), Textile (42)

Textile (42)

Account

Format (2)

40

(16%)

Bank (7), Engineering (3), Food & Allied (3),

Insurance (25), Paper & Pack (1), Pharma & Chem (1)

Insurance (25)

Total 243


Table 9: Balance Sheet Presentation Styles with Presentation Formats

Balance

Sheet

Presentation

Styles

Presentation

Formats

[(1) Report

Format, (2)

Account

Format]

Frequency of

Combination

Sector Modal Sector

1 23 Ceramics (1), Engineering (2), Food

& Allied (4), ICT (1), Leather (1),

Pharma & Chem (3), Service & Real


Textile (10)

2

2 2 Engineering (1), Paper & Pack (1)

1 3 Finance & Investment (1), Food &

Allied (1), Service & Real Estate (1)

3

2 5 Engineering (2), Food & Allied (2),

Pharma & Chem (1)

4 1 8 Engineering (1), Food & Allied (1),

Misc (1), Pharma & Chem (2),

Textile (3)

Textile (3)

5 1 45 Cement (1), Ceramics (1),

Engineering (9), Finance &

Investment (2), Food & Allied (6),

Fuel & Power (2), Leather (3), Misc

(2), Paper & Pack (4), Pharma &

Chem (8), Service & Real Estate (1),

Textile (6)

Engineering (9)

1 82 Cement (7), Ceramics (1),

Engineering (6), Food & Allied (17),

ICT (4), Jute (3), Leather (2), Misc

(8), Paper & Pack (2), Pharma &

Chem (10), Service & Real Estate

(1), Textile (21)

Textile (21)

6

2 1 Food & Allied (1)

13

7 1 1 Paper & Pack (1)

8 1 15 Ceramics (1), Engineering (1), Food

& Allied (6), Fuel & Power (1), Misc

(2), Pharma & Chem (2), Textile (2)

Food & Allied (6)

9 1 1 Pharma & Chem (1)

1 18 Bank (18) 10

2 7 Bank (7)

1 1 Insurance (1) 11

2 25 Insurance (25)

12 1 6 Finance & Investment (1), Leasing

(5)

Leasing (5)


CONCLUSIONS

This study found that 31st December (52%) is the most used balance sheet reporting date. English

language is the main language (93%) to report the balance sheet, which greatly removes the chance of

information asymmetry due to language. Another common feature is the balance sheet format. Most of

the companies (84%) follow report format of balance sheet. Regarding the balance sheet presentation

style, the average practice is Style 6 (34%), which focuses on working capital, and long-term financing

keeping long-term investing at top. The wide free choice of balance sheet styles by different sectors make

the information cost higher. Due to the strict regulation, financial sectors in Bangladesh follow uniform

balance sheet styles. Regarding the marshalling of assets, most of the companies (76%) follow fixed

assets first with least liquid first and more liquid last, then current assets second with less liquid first and

most liquid last.

The findings certainly disclose one issue that the wide variety of choices adopted by the companies

hampers the comparability characteristic of financial reporting. For example, reporting date of December

31, and June 30 by the textile sector companies surely create problem for textile sector analysts. This

kind of wide variety of presentation choice may create information risk for the economic decision

makers, and may lead to agency problem. It can be a great concern to implement or improve corporate

governance quality. It is essential to increase investor confidence as the private sector moves from family

firms to more broadly owned companies that mobilize funds from the public. Further uniformity will

ensure information asymmetry for the investors and the capital market will be more efficient. Corporate

governance would be much improved with uniform balance sheet reporting. Un-uniform balance sheet

reporting creates cost to the investors to make it asymmetric. The findings of this paper may help the

policy makers of the trade association also to set a common reporting outline for better comparability. It

can be used in broader perspective like in discussion of regional or international harmonization. This

paper focused on recent balance sheet reporting practices in Bangladesh. Future research can be on

convergence of financial reporting within the industry over several time periods.

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16

Appendix A: Balance Sheet Pro forma as per BAS 1

Assets

Non-Current Assets 1

Property, Plant and Equipment

Goodwill

Manufacturing licences

Investment in associates

Other financial assets

Current Assets: 2

Inventories

Trade and other receivables

Prepayments

Cash and cash equivalents

Total assets/Total Application of Funds 3= (1)+(2)

Equity and Liabilities

Capital and Reserves 4

Issued capital

Reserves

Accumulated profits/ (losses)

Minority interest

Non-Current Liabilities 5

Interest bearing borrowings

Deferred tax

Retirement benefit obligation

Current Liabilities 6

Trade and other payables

Short term borrowings

Current portion of interest bearing borrowing

Warranty provisions

Total Equity and Liabilities 7=4+5+6

17

Appendix B: Different Balance Sheet Styles Being Practiced in Bangladesh

Appendix B: Style 1

Assets

Current Assets: 1

Inventories

Accounts receivable

Advances, deposits, and prepayments

Investment in marketable securities

Short term loans

Cash and bank balances

Non-Current Assets: 2


Investment - Long term (at cost)

Total assets 3= (1)+(2)

Equity and Liabilities


Short term bank loans

Long term loan - Current portion

Trade creditors

Liabilities for expense

Liabilities for other finance

Non-Current Liabilities: 5

Long term loan –Secured

Capital and Reserves: 6

Issued capital

Retained earnings

Total Liabilities and Shareholders' Equity 7=4+5+6

Appendix B: Style 2

Assets/Application of Funds

Non-Current Assets/Fixed Assets: 1



Current Assets: 2

Inventories

Accounts receivable



Short term loans



Equity and Liabilities/Sources of Funds

Capital and Reserves/Shareholders Fund: 4

Issued capital

Retained earnings

Non-Current Liabilities/Long-Term Liabilities: 5





Trade creditors



Total Liabilities and Shareholders' Equity/Total Sources of

Funds 7=4+5+6

18

Appendix B: Different Balance Sheet Styles (Continued)

Appendix B: Style 3

Equity and Liabilities/Sources of Funds

Capital and Reserves/Shareholders Fund: 1

Issued capital

Retained earnings

Non-Current Liabilities/Long-Term Liabilities: 2





Trade creditors



Total Liabilities and Shareholders' Equity/Total

Sources of Funds 4=1+2+3

Assets/Application of Funds

Non-Current Assets/Fixed Assets: 5



Current Assets: 6

Inventories

Accounts receivable



Short term loans



Appendix B: Style 4

Net Assets:

Fixed assets - At cost less depreciation 1

Capital work-in-progress 2

Investment - Long term (at cost) 3

Current Assets: 4

Stocks

Trade debtors



Short term loans


Less: Current liabilities 5



Trade creditors



Net current assets 6 =(4) - (5)

7=1+2+3+6

Financed by:

Long term loan -Secured 8

Shareholders equity: 9

Share capital

Share premium

General reserve

Retained earnings

10 = (8)+(9)

19


Appendix B: Style 5

SOURCES OF FUNDS

Shareholders' Funds 1

Share capital

Share premium

General reserve

Retained earnings

Long Term Liabilities


Total 3 = (1) + (2)

APPLICATION OF FUNDS

Fixed Assets 4

Fixed assets - At cost less depreciation

Capital work-in-progress


Current Assets: 5

Stocks

Trade debtors



Short term loans





Trade creditors




Preliminary expenses 8

10 = (4)+(7)+(8)

Appendix B: Style 6


Fixed Assets 1




Current Assets: 2

Stocks

Trade debtors



Short term loans





Trade creditors



Net current assets/Net Working Capital 4 =(2) - (3)

Net Assets/ Capital Employed 5 = (1)+(4)

SOURCES OF FUNDS/ FINANCED BY


Share capital

Share premium

General reserve

Retained earnings



Total sources of funds 8 = (6)+(7)

20


Appendix B: Style 7

Current Assets: 1

Stocks

Trade debtors



Short term loans





Trade creditors



Net current assets/Net Working Capital 3 = (1) - (2)

Fixed Assets 4




Net Assets 5 = (3)+(4)

SOURCES OF FUNDS


Share capital

Share premium

General reserve

Retained earnings



Total sources of funds 8 = (6)+(7)

Appendix B: Style 8

Net Assets:

Fixed assets - At cost less depreciation 1

Capital work-in-progress 2

Investment - Long term (at cost) 3

Current Assets: 4

Stocks

Trade debtors



Short term loans





Trade creditors




Long term loan - Secured 7

Net Assets 8=1+2+ 3+ 6- 7

Financed by:

Shareholders equity: 9

Share capital

Share premium

General reserve

Retained earnings

10 = (9) = 8

21


Appendix B: Style 9

SOURCES OF FUNDS


Share capital

Share premium

General reserve

Retained earnings

Total 2 = (1)


Fixed Assets 3




Investment 4

Current Assets: 5

Stocks

Trade debtors



Short term loans





Trade creditors




Preliminary expenses 8

Less: Long term liabilities 9

10 = (3)+ (4)+(7)+(8) -(9)

Appendix B: Style 10

Properties and Assets 1

Cash

Balance with other banks & financial institutions

Money at call and short notice

Investments (shares and bonds)

Investments (general)

Fixed assets

Other assets

Non-banking assets

Total assets (2) = 1

Liabilities and Capital

Liabilities 3

Borrowing from other banks

Deposits and other accounts

Other liabilities

Capital/ Shareholders' equity 4

Paid up capital

Share premium

Statutory reserve

Retained earnings

Total Liabilities and Shareholders' Equity (5) = 3+4

Off Balance Sheet Items

Contingent Liabilities 6

Acceptance and endorsements:

Letter of guarantee

Irrevocable letter of credit

Bills for collection

Other Commitments 7

Total off balance sheet items (8) = 6+7

22



Capital and Liabilities 1

Share capital

Share premium

Reserve and contingency account: 2

Reserve for exceptional losses

Profit & loss appropriation

Total shareholders' equity (3) = 1+2

Balance of funds & accounts 4

Fire insurance business

Marine insurance business

Misc. insurance business

Premium deposit 5

Liabilities & provision 6

Sundry creditors 7

(8)= 3+4+5+6+7

Property and Assets 9

Investment

Agents balances

Outstanding premium

Sundry debtors


Other accounts: 10

Fixed assets

Stock of stationery and stamps

Preliminary expenses

Share issue expenses

(11)= 9+10


SOURCES OF FUNDS


Share capital

Share premium

General reserve

Retained earnings


Long term loan - Secured 2

Total 3 = (1) + (2)


Leased Assets 4

Investment and Advances 5

Net investment in lease finance

Investment in shares

Provision for future losses on lease accounts

Provision for future losses on loan accounts

Fixed Assets 6

Intangible Assets 7

Current Assets: 8


Trade debtors


Net Investment in lease finance - current maturity

Short term loans


Payables & accrued expenses

Short term loans

Lease advance - current maturity

Term loan - current maturity

Provision for tax


11 = (4)+(5)+(6)+(7)+(10)

23

Appendix C: Marshalling of Assets

Type 1 Type 4

Fixed asset first Current asset first

Less liquid first More liquid first

More liquid last Less liquid last

Current asset second Fixed asset second

Less liquid first

More liquid last

Type 2 Type 5

Fixed asset first Non-current asset first

More liquid first Current asset second

Less liquid last Non-current asset third

Current asset second

More liquid first

Less liquid last

Type 3 Type 6

Current asset first Fixed Asset First

Less liquid first Less liquid first

More liquid last More liquid last

Fixed asset second Current Asset Second

More liquid first

Less liquid last

balance sheet reporting practices by listed companies of bangladesh

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