VOL. 1 ISSUE 1
GOING TO PUBLIC PG. 16 THE VALUED BUSINESS PARTNER PG. 24
ENHANCED CONTRIBUTION
MOHAMMAD ALI NAWAZ, FCMA, CFO- BEXIMCO PHARMACEUTICALS LIMITED CFO Connect Bangladesh
The New Endeavour Chief Editor Md. Kausar Alam MBA(IBA), FCS, FCCA, FCMA
As the financial crisis and economic challenges of the past few years have reshaped the global business environment, they have spurred profound changes in organizations in the around the world. In particular, the role of the chief financial officer has evolved--and expanded--as the finance function has come to the fore.
Editorial Pannel
In addition to overseeing the company's financial health, CFOs are increasingly involved in setting operational and commercial strategy, navigating their companies safely through tighter credit markets, more complex regulation and unstable trading conditions. CFO are developing the strategy for the organization as a partner to and member of the executive leadership team, and then funding and executing that strategy through financial planning and performance management.
Khaled Mahmud Raihan, ACCA Mohammad Nazrul Islam, FCMA, FCA Mohammad Shakawat Hossain Bhuyan ACA, QIA(UK), CIMA(UK) Md. Anwar Hossain, ACA Ms. Farhana Sultana, ACA
Publishing Director Mohammad Akram Hossain Siblee FCMA, ACCA, CPA
To kick start our coverage of this challenging remit, CFO cover subject Mohammad Ali Nawaz, FCMA, Beximco Pharmaceuticals Ltd. Chief Financial Officer, shares an exclusive interview with CFO Magazine, talking about his role and contribution in the company’s growth journey. Beximco Pharma is one of the leading manufacturers and exporters of medicine in Bangladesh, has grown consistently over the years in both top line and bottom line. The first issue also covers a candid interview of Mr. Kamrul Abedin, FCA, President of The Institute of Chartered Accountants of Bangladesh (ICAB), where he conveyed his views on chartered accountancy profession as well as other related matters. ‘The CFO Bangladesh’, the first kind of magazine in Bangladesh for CFOs and senior finance executives, which will provide vital link between regulators, accounting, audit and senior finance professionals across the industries. It serves as a platform for financial executives to share ideas and opinions; a forum where professional bodies can communicate with their members, supercharging the development of the finance profession in Bangladesh. It also features regular interviews with thought leaders, and the latest industry news and event coverage. It’s a critical, attractive and provocative tool for reaching the most important C-suite role of all – today’s CFO. CFOs role is rapidly evolving before the world’s eyes: a warm welcome to a new publication which sets out to be the champion of this new protocol.
CFO Connect Bangladesh
Published by: CFO Connect Bangladesh Copyright 2016 CFO Connect Bangladesh all rights reserved. While the publishers have made every effort to ensure the accuracy of all information in this magazine, they will not be held responsible for any errors therein.
Correspondence Address: CFO Connect Bangladesh 18/6 Bashiruddin Road, Lake circus, Kalabagan, Dhaka. Contact: +8801726630038
Price: Tk. 100
Md. Kausar Alam MBA(IBA), FCS, FCCA, FCMA Chief Editor
TALK TO US: Email: info@cfoconnectbd.com Facebook: www.facebook.com/cfoconnectbd/
www.cfoconnectbd.com Linkedin: www.linkedin.com/thecfobd
CONTENTS
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9
Cash - The Lifeblood
A business can survive for a short time without sales or profits, but not without cash. It is cash which pays the bills and allows business to continue.
12
The President’s View ICAB President Mr. Kamrul Abedin FCA, partner of M J Abedin & Co. Chartered Accountants conveyed his views on chartered accountancy profession as well as other related matters.
16
Going To Public
All sorts of growing Companies often need to raise capital for investment in new projects or for expansion its existing project. One way to do this is to take the company to public.
20
Enhanced Contribution
As CFO, Mohammad Ali Nawaz, FCMA, explained his role in the growth journey of one of the leading manufacturers and exporters of medicine in Bangladesh, BEXIMCO Pharma.
24
The Valued Business Partner Today’s internal audit is more focused on organization critical matters that ensures reasonable assurance and update to the audit committee how company is being managed properly.
12
16
26 26
Responsive To Requirements Mehedi Hasan, partner of RRH / KPMG Bangladesh elucidates views regarding profession, the success story and future aspiration of the firm.
29
Bangladesh CFO Survey Report 2016
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Bangladesh CFO Report 2016 In Bangladesh CFO survey 2016, total 81 CFOs were participated and the majority of the respondents hail from manufacturing and financial sector.
34
Welfare Banking
EVP & CFO of Islami Bank Banglades Mr. Mohammed Shahid Ullah, ACA shared his journey as CFO and grounds of outstanding performance of the bank.
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36 36
Conquering The Deal
M&A is a notoriously difficult undertaking. Important factors for the success of a deal are well executed integration plan, the correct valuation, an effective due diligence plan, etc.
NEWS
ECONOMY TO GROW 7.05PC: BBS
OPEN DISCUSSION ON PROFESSIONAL MATTERS HELD AT ICMAB
The country's economic growth is set to break the 'six per cent trap', as a 7.05 per cent growth rate has been estimated for this fiscal year (FY), driven by industrial and service sectors, according to official data. The per capita income (gross national income - GNI) of a Bangladeshi citizen have risen to US$1466 in the current FY, 2015-16, marking an 11.4 per cent rise from $1316 in the last FY, the Bangladesh Bureau of Statistics (BBS) provisional data said. BBS, the national statistical organisation, has estimated the provisional figures based on the available data in the last three quarters (July-March) and considering the fourth quarter statistics of the previous years. In FY 15, the country's GDP growth stood at 6.55 per cent and the per capita income at $1316, the BBS data showed. According to BBS, Bangladesh's total GDP size at current price has been estimated at $221.31 billion (Tk 17.29 trillion) in the current fiscal. Development experts said Bangladesh's economic growth was caught in '6.0 per cent trap' over the last nine years. Although the GDP growth increased to 7.06 per cent during the last caretaker regime in FY 2007, it could not cross the 6.0 per cent trajectory till last FY 2015. The government set a target of achieving 7.0 per cent GDP growth for the current fiscal. Meanwhile, the development partners and global financial institutions had projected a lower GDP growth for Bangladesh compared to the government's target of 7.0 per cent. WB in its last development update this year projected a 6.7 per cent growth rate, while ADB also forecast the same in its Asian Development Outlook last month.
KEY STAT
5.65%
Overall Inflation 6
An open Discussion on Professional Matters was organized by the Institute of Cost and Management Accountants of Bangladesh (ICMAB) on April 12, 2016 at ICMAB Ruhul Quddus Aditorium, ICMA Bhaban, Nilkhet, Dhaka to discussion on various issues relating to the development of CMA profession as well as the Institute. The Program was organized under the chairmanship of Mr. Arif khan FCMA President, ICMAB. A good number of Fellow & Associate members of the Institute were present
in the meeting and took part in the discussion. During the discussion the participating Members expressed their views, offered valuable suggestions for development of CMA profession and the Institute. The President patiently heard & noted the points from discussion and assured to make ICMAB international standard with the support and co-operation of the members of the Institute. Among others Vice President Mr. Jamal Ahmed Choudhury FCMA, Secretary Mr. Md. Abdur Rahman Khan FCMA, Treasurer Prof. Dr. Swapan Kumar Bala FCMA spoke on the occasion.
NEXT BUDGET SIZE TO BE TK 3.4T Finance Minister A M A Muhith pointed out that the size of the national budget for the next fiscal year (FY), 2016-17, is likely to be Tk 3.40 trillion. "In the next national budget, we are also planning to prepare a separate 'capital budget' for the mega projects," he said in a recent pre-budget meeting with some local economic research bodies. The Ministry of Finance (MoF) arranged the meeting to take opinions on the forthcoming national budget for FY 17. Mr Muhith said the government wants to achieve more than 7.0 per cent growth in the next fiscal, for which an increased volume of investment will be required. "We have taken the mega projects seriously. We will keep aside separate budget for such projects in addition to the traditional development programme to expedite their implementation." "We are implementing some transformational development projects in Bangladesh, which needs substantial funds," the minister also said.
"We are getting concessional loan worth nearly US$4.0 billion every year. But it is not enough for the required development. So, we need to inject more money."Among the participants noted economist Professor Wahiduddin Mahmud suggested the government to prepare a "large budget" in terms of size to invest more money for the country's development. "I think we don't have shortage of money. But we have shortage in project implementation capacity. So, we should improve our capability to utilise the proposed large budget." He further said: "The government is spending adequate money for development works. But now it is high time to evaluate all the projects - their design as well as impact on the society, national economy and environment etc to ensure quality output." As the country is witnessing less-than-expected investment from the private sector, the public sector investment should be boosted, Prof Mahmud opined.
The CFO Bangladesh
NEWS
ICAB MEMBERS’ CONFERENCE ON ‘RAISING THREAT OF CYBER ATTACKS AND EXPECTATION FROM PROFESSIONAL ACCOUNTANTS’
In the backdrop of Panama papers scam and hacking of reserve money of Bangladesh Bank, the Institute of Chartered Accountants of Bangladesh recently hold member conference on ‘Raising threat of cyber attacks and expectation from professional accountants’. As assurance service providers, professional accountant in practice has to look into the organizations for cyber risk management. They should take responsibility to advise the organizations for improvement of cyber security systems. The company directors should often discharge their duties by delegating them to professional accountants who would come up with methods to protect the company silver increasingly in a digital environment. ICAB Council Member and Past President Mohammed Humayun Kabir in his key-note paper described the role of professional accountants in preventing cyber malpractice. The government has to take appropriate steps to respond to the growing threat of cyber
terrorism. There is need for sharing of cyber security threat information within the private sector and between the private sector and the government through the formation of Information Sharing and Analysis Organizations, Mr. Kabir suggested in the paper. Chief guest of the conference Dr.Qazi Kholiquzzaman Ahmad, Chairman of PKSF said that human resource development is the centre for bringing over all developments. We can’t advance without taking advice from the others, it should not be like this. If we want to go far, we have to forge skilled manpower, he added. In digital ages unless managing the organizations properly and having skilled manpower, cyber attack would remain a great threat, he further said. President of ICAB, Mr. Kamrul Abedin said that cyber attacks pose a threat to all organizations; the financial institutions are over 30 % more like to be targeted than other companies. Recently, Russian security company Kaspersky reported 100 banks and financial institutions across 30 countries infiltrated by cyber criminals. He said accountants need to understand IT security policies at their firms to ensure safe online practices, procedures of reporting and dealing with breaches.
NEW MEMBER IN BSEC
The government has appointed Dr. Swapan Kumar Bala, FCMA as a member of Bangladesh Securities and
7
Exchange Commission for a two-year term. The public administration ministry issued dated 18 April, 2016 a notice announcing the contractual appointment of Bala, the immediate past managing director of Dhaka Stock Exchange. Bala had served the premier bourse for a three-year term that ended April 12. Bala, a professor of accounting and information system at Dhaka University, will fill the vacancy created by Arif Khan who stepped down as a commissioner of the BSEC in January.
ICD ACQUIRES 10PC STAKES OF AL-ARAFAH BANK The Islamic Corporation for the Development of the Private Sector or ICD, Jeddah, the private sector financing arm of the Islamic Development Bank, announced investment of about Tk 155 crore to acquire 10 percent stakes in Bangladesh's Al-Arafah Islami Bank. Al-Arafah Islami Bank will issue around 11 crore fresh shares of Tk 10 each with Tk 4 as premium to the ICD. The investment is, however, subject to shareholder consent and regulatory approvals from the central bank, the Bangladesh Securities and Exchange Commission and other relevant authorities. Al Aboodi, CEO of ICD said the strategic initiative reflects ICD's efforts to play the role of catalyst in the promotion of Islamic finance and private sector development in Bangladesh. Earlier, the ICD committed $110 million for manufacturing, textiles and apparel, construction, and power sectors of Bangladesh along with $70 million lines of financing for the small and medium enterprises sector. The proposed collaboration with Al-Arafah Islami Bank exhibits the ICD's long-term vision to bring not only good corporate governance, international best management practices, innovative Islamic products but also to bring stability and confidence in Bangladesh's financial sector, he added. Al-Arafah bank was listed on the Dhaka Stock Exchange in 1998 Earlier in February, the International Finance Corporation, the private sector arm of the World Bank Group, invested more than Tk 131 crore to acquire 5 percent stakes of local City Bank.
KEY STAT
4.81%
Interest Rate Spread
The CFO Bangladesh
Feature
Cash Flow
CASH THE LIFEBLOOD A business can survive for a short time without sales or profits, but not without cash. It is cash which pays the bills and allows business to continue. And if you are growing, and extending credit to more customers, the need for cash is greater.
C
ash flow management is vital to the health of your business. The oft-used saying, ‘revenue is vanity, profit is sanity; but cash is king’ remains sage advice for anyone managing company finance. Cash flow is the lifeblood of businesses and is the primary indicator of business health. It is generally acknowledged as the single most pressing concern of most medium-sized companies, although even CFOs of the largest organizations emphasize the importance of cash. In a credit crunch environment, where access to liquidity is restricted, cash management becomes critical to survival. At different 9
times, different finance scholars conclude that persistency of short-term liquidity problem, which emanates from poor cash management, ultimately resulted to long-run solvency problem of an organization. In its simplest form, cash flow is the movement of money in and out of your business. It is not profit and loss, although trading clearly has an effect on cash flow. The effect of cash flow is real, immediate and, if mismanaged, totally unforgiving. Cash needs to be monitored, protected, controlled and put to work. The CFO Bangladesh
Feature
Cash Flow
Cash flow management is all about balancing the cash coming into the business with the cash going out. The danger is that demands for cash, from the landlord, employees or the tax man, arrive before cash you’re owed is collected. More often than not, cash inflows seem to lag behind your cash outflows, leaving your business short. This money shortage is your cash flow gap. If a company is trading profitably, each time the cycle turns; a little more money is put back into the business than flows out. But not necessarily. If you don’t carefully monitor your cash flow and take corrective action when necessary, your business may find itself in trouble. If cash flow is carefully monitored, you should be able to forecast how much cash will be available on hand at any given time, and plan your business activities to ensure there is always cash to meet upcoming payments. Sabbir Ahmed, FCMA, GM & Head of Finance, Rahimafrooz Storage Power Division, says that cash flow management is obviously crucial for non performing company, even vital for a good company in terms of profitability. “In a profitable company there creates an expectation that since the company is making profit its cash flow is also good, but it may not be. A profitable company’s cash flow management may suffer from poor working capital management, which tempts to increase loan and finance cost and ultimately profitability will go down,” says Sabbir Ahmed. “Operational improvement can be possible by managing cash flow. Negative operating cash flow implies problem in operation; it may be from poor management of receivable, inventory or payable.” He added. Further to that, Sabbir Ahmed says the importance of improving cash flow management of a non-performing business. “If cash flow does not improve, there will always be fund shortage which impairs on timely procurement and links to under achievement of sales target. So first improve the cash flow through ensuring proper resources deployment in 10
BUSINESS SUCCESS operation and then expect the improvement of profitability of the company.” He reiterated. Sabbir Ahmed also says about the importance of cash flow management for company image both in inside and outside the organization. “Poor cash flow management is sometimes very de-motivating for supplier and employees. Whether company does well or not, it will be difficult to retain or attract quality people if employees’ salary is not given on-time. Even customers become shaky about sustainability of the company when news spread in the market about cash crunch or poor cash flow management,” says Ahmed. “Suppliers may not provide goods in my critical time and in some cases they may create trouble deliberately or vindictively as they suffered from irregular payment culture of the company.” “In most of the cases while doing yearly budget, we provide our considerable effort in determining profitability or
income statement but not provide adequate weight on cash flow forecasting. Detailed cash flow planning helps us in implementing the expansion plan and materializing sales growth projection,” say Sabbir Ahmed.
“If cash flow does not improve, there will always be fund shortage which impairs on timely procurement and links to under achievement of sales target. So first improve the cash flow through ensuring proper resources deployment in operation and then expect the improvement of profitability of the company.”
The CFO Bangladesh
Feature
Cash Flow
CASH
FLOW MANAGEMENT
“For Upholding liaison with banks, importance of profitability is 10% but cash flow management is 90%. For that matter, product selection from banks is also important. If my cash conversion cycle is 180 days but my bank loan mature in 90 days then obviously there will be mismatch in cash flow management which will trigger to default in loan payment.”
By gaining holistic view of your cash flows, you should be able to answer following questions: • How does cash flow rotate around the enterprise and what responsibilities/accountabilities do finance and other functions have in relation to cash management?
In Bangladesh perspective, company’s profitability is immaterial in maintaining relationship with banks, but on time servicing is very crucial. “For Upholding liaison with banks, importance of profitability is 10% but cash flow management is 90%. For that matter, product selection from banks is also important. If my cash conversion cycle is 180 days but my bank loan mature in 90 days then obviously there will be mismatch in cash flow management which will trigger to default in loan payment,” says Sabbir Ahmed. “My profitability may be ok, but relationship with bank may be affected due to poor cash flow management.” He emphasized. According to Sabbir Ahmed, the biggest challenge of cash flow management is accurate sales projection and realization of credit. Actually sales projection is the starting point of cash flow projection. In an organization the most variable thing is sales and most uncertain thing is when cash will come. To overcome this uncertainty while 11
managing cash flow, CFO or Head of Finance has to know the business or what really happens in the market. When CFO knows the real market pulse and correctly forecasts the sales based on that, then his cash flow management will be more realistic. Though cash flow forecasting and management is more a finance function, it is heavily dependent on sales, production and procurement. Finance always has ballpark cash flow estimation based on its own projection. In a publication of Deloitte ‘Strategies for optimizing you cash management’ accentuates on taking an enterprise-wide approach to cash management. To gain an enterprise-wide view of cash manage ment, it’s important to track your sources and use of cash by both type and location. It can also mean engaging functions such as sales, procurement and operations more meaningfully in the cash management process.
• How do you compare to internal and external benchmarks? Are you meeting the norms for working capital turnover in areas such as DSO (Days Sales Outstanding), DPO (Days Payable Outstanding) and DIO (Days Inventory Outstanding)? • Do you have capital spending plans in place and have these been matched with corresponding sources of the required cash? • How much cash do you need to hold in each location? What is your process for funding different business locations that may be experiencing short-term cash flow shortages? • How are cash generation and preservation actions encouraged and incentivized across the enterprise? • If you consolidate your various bank accounts and/or streamline the way each location collects receivables, can you reduce the amount of cash trapped in transit?
The CFO Bangladesh
Interview
ICAB President
THE PRESIDENT’S VIEWS The Institute of Chartered Accountants of Bangladesh (ICAB) is premier national professional accountancy body of Bangladesh established under the Bangladesh Chartered Accountants Order 1973 (Presidential Order No. 2 of 1973). In an interview with ‘The CFO Bangladesh’ ICAB President Mr. Kamrul Abedin, FCA, partner of M J Abedin & Co. Chartered Accountants conveyed his views on chartered accountancy profession as well as other related matters.
This is well said that there have been shortages in qualified accounting talents in Bangladesh. What do you think is the reason behind this? Particularly in Chartered Accountancy profession, mainly two factors impact on getting qualified accountant. Usually, professional accountancy study starts after completion of graduation or masters, whereas, in other profession like medical, engineering their main education completed after graduation. After graduation, those who want to come in chartered accountancy profession feel hesitation since other discipline graduates start their formal career at this point. Secondly, since majority students of CA profession are coming from middle class family, it is burdensome for families to support a graduate or post graduate financially for another 3-4 years. Though CA article students get financial support from firms but this is insufficient. Another major reason is huge job opportunities in financial sectors like bank, insurance and leasing companies. Since there is uncertainty of passing in CA exams, qualified graduates are allured to join financial sectors’ job due to offer of handsome remuneration. Where does the responsibility of developing these talents lie? From ICAB perspective, we have taken several steps to increase talents. Recently we came an understanding with Dhaka University to get qualified inputs from them. We have intention to seat with major public and private universities to provide some exemptions based on their syllabus depth. Though it is at very preliminary stage, we have plan to increase remuneration of articled students to attract quality input in the profession. Other than 1,800 (approx) qualified CA, we have more than 25,000 course completed students. Already we have formed a committee to train these professionals in accounting standards and reporting so that they
12
can meet the dearth of qualified accountants in the industry. Why is the collaboration between ICAB and ICAEW significant? How chartered accountancy profession is impacted with this strategic tie? For strengthening accounting and auditing standards in Bangladesh corporate sectors, World Bank gave some recommendations in May 2003 through the Report on the Observance of Standards and Codes (ROSC) Accounting and Auditing. Accordingly, ICAEW was selected as mentor under a twinning project funded by the World Bank for capacity building of ICAB and the accountancy profession since 2008. Since then ICAB has mutual collaboration with ICAEW. ICAB has successfully implemented the strategic guidelines as devised by ICAEW. Reform in curriculum structure, study materials, exam process, organizational structure including formation of quality assurance department, professional conduct department, IFAC compliance program etc. are the key strategic issues of the said twinning project. A detailed strategic paper was developed under that project and approved by ICAB Council in 2008. Except for the local law and tax papers, currently ICAB is following the ICAEW curriculum which is developed in line with the requirement of International Education Standards. ICAB is very much compliant with IFAC SMO Requirements that includes quality assurance, education standards, auditing standards, code of ethics, public sector accounting standards, investigation and disciplinary matters and financial reporting standards. ICAB members can be the member of ICAEW just after passing 3 ICAEW papers out of 15 papers. Moreover, ICAB has been highly appreciated by IFAC for last few years because of its commitment and compliance with IFAC
The CFO Bangladesh
Interview
ICAB President
Program. Because of strategic tie and mutual collaboration with ICAEW, the ICAB and CA profession is being benefitted in terms of professional development, capacity building, and image building of profession. How important is the Financial Reporting Act in Bangladesh's accounting & auditing industry? Any positive change can bring optimistic result. But we need to understand whether that change is appropriate, timely and relevant with the local context and environment or not. Even to understand the ground reality, we can look at the surroundings and experience of neighboring
“What we expect that if FRC can work independently then it will bring good results. But before that it has to go far away. Being experts in accounting and auditing sector, independent chartered accountant should be appointed both in the Board and Management of FRC like the FRCs in developed countriesmatters.”
countries. From that point of view, I can say firstly that FRA should not be the first priority for Bangladesh Context. In fact such FRA is not existed in any neighboring country. On the other hand, the concept of FRA in Bangladesh firstly came through the World Bank ROSC 2003 based on the accounting and auditing environment of that time. But within the next few years ICAB and BSEC have developed tremendously. The World Bank in November 2014 issued the updates of 2003 ROSC where it clearly mentioned that “the establishment of a new independent oversight authority for accountants and auditors in Bangladesh may be too advanced a step considering the relative size of the corporate sector and profession in more developed countries. There is strong view among the stakeholders that establishment of a separate regulatory body such as a Financial Reporting Council (FRC) may not necessarily bring the desired result should the performance of other regulatory bodies remain in their current state.” We are ready to cooperate to the FRC Council and management to be formed in every respect. The main four functions of FRC would be standards setting, practice assurance review, monitoring and enforcement. ICAB has very strong working experience on all of those areas. Different department under technical, committee and boards of ICAB are involved with the activities of standard setting, quality assurance, monitoring, disciplinary measures and enforcement. So nothing is new except the same activities under different umbrella (FRC). What we expect that if FRC can work independently then it will bring good results. But before that it has to go far away. Being experts in accounting and auditing sector, independent chartered accountant should be appointed both in the Board and Management of FRC like the FRCs in developed countries.
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The CFO Bangladesh
Interview
ICAB President
“We have Investigation and Disciplinary Committee (IDC) which is chaired an independent experienced person who is a retired partner of a reputed CA firm of the country so that no question will arise about its actions. But sometime we face one problem in case of punishment i.e. while IDC provides punishment against a firm then the firm can take stay order from court.”
It is true that the main stakeholders of FRC are the Management and Boards of corporate and then Auditor. FRC should understand that. Preparation and presentation of financial statements should be fair and in line with the Financial Reporting Standards. For that huge training should be given and awareness needs to be created. If FRC can work independently with expertise and efficiency, then it would be effective and fulfill the objective of its formation.
What initiatives does ICAB currently have and will be lunching soon in terms of further fostering chartered accountants and other finance roles? ICAB has been conducting lots of activities in different stages to foster the chartered accountancy profession. At input stage we try to attract brilliant students through understanding with different universities, for our existing students we conduct training on exam techniques so that they can qualify quickly and for their practical skill in firm we conducted activities to enhance the capacity of the firms. In addition to that, for members those who are in service what we termed as PAIB (Professional Accountant in Business) and we want to see them as CEO. For that purpose we have conducted leadership program to enhance their communication capabilities hosted by the best resources from our members and even from experience trainers from IBA, DU. For members in practice, we organize regular programs on professional issues. Already the best global firms are having ties with our firms in Bangladesh. However, we will work on the capacity building of fifty firms so that they can easily bring the affiliation of the remaining reputed global firms.
which is strongly assisted by huge revenue collection by NBR, and without the contribution of CA this revenue collection would never happened. So the importance of our contribution to the nation is inevitable.
There is lack of trust on the audited financial statements in Bangladesh and one major reason cited about lack of control/supervision over auditing firms by ICAB, what steps ICAB have taken to monitor the practicing firms? Due to our strict monitoring process over firms, World Bank praised ICAB tremendously in 2014 ROSC report. We have Investigation and Disciplinary Committee (IDC) which is chaired an independent experienced person who is a retired partner of a reputed CA firm of the country so that no question will arise about its credibility. But sometime we face one problem in case of punishment i.e. while IDC provides punishment against a firm then the firm can take stay order from court. We have quality assurance department who by rotation visits every audit firm to ensure compliance of quality control and practicing standards in line with IFAC requirement. For our work on control/supervision over auditing firms, IFAC and ICAEW have been appreciating ICAB in addition to the World Bank. ICAB has been working rigorously to improve these activities day by day on ongoing basis. Recently we circulated ‘minimum fees schedule’ among our members so that the cost of quality audit can be ensured. Maintaining authenticity of financial statement is the liability of management of business, but everybody including industry intellectuals talk against CA. But like other places, there is a vested corner who tries to pass the bug to other shoulder and it is easy to pass on to the CA.
We like to share you that our national budget is more than 3 lac crores now 14
The CFO Bangladesh
Interview
ICAB President
Basically it is not possible for a council of high dignity professionals to support any criminal. On the other hand, there is governance structure in ICAB where every council member like other members has possibility for his wrongdoing. ICAB has full time management; activity based different departments, committees, boards, internal and external communications and relation and with regulators, global and international accountancy bodies etc. So based on untrue concept, it would not be fair to blame a highly educated and dignified group of elected professionals like ICAB Council. Rather it is true that as the Council is formed by elected members, the disciplinary measures can be taken very professionally maintaining independence. Institute’s stand is zero tolerance against any wrong of CA firms. There are severe disjoints among the local accounting institutes (ICAB, ICMAB & ICSB). Doesn't it impair the development of accounting industry in Bangladesh?
“ICAB has full time management; activity based different departments, committees, boards, internal and external communications and relation and with regulators, global and international accountancy bodies etc. So based on untrue concept, it would not be fair to blame a highly educated and dignified group of elected professionals like ICAB Council.”
There is a saying that ICAB council might not be tough against its members since council members are elected by its members. What is your
accountancy bodies in Bangladesh i.e. ICAB and ICMAB and between them
opinion regarding this view?
only ICAB has a course and training
It is totally a wrong idea. ICAB Council
Bangladeshi context only chartered
has both practicing and non-practicing members. In every profession there are some wrongdoers. But maximum people are doing well. So from your question, if someone favors a wrongdoer, maximum professionals will criticize it and will be refrained from voting him in next election.
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There are only two professional
program. As per law and IFAC rules, in accountants can do audit because other professional body has no training program. So other professional institute cannot make them equivalent to ICAB. But we should work together for the development of accounting profession in Bangladesh and hopefully in future at any point both institute will work jointly.
The CFO Bangladesh
Feature
IPO
16
The CFO Bangladesh
Feature
IPO
GOING TO PUBLIC All sorts of growing Companies often need to raise capital for investment in new projects or for expansion its existing project. One way to do this is to take the company to public, through initial Public Offering (IPO). An IPO involves the issue of new shares or the sale of existing shares by current holders, sometimes both. Purchasers of most of these shares at flotation will be Eligible Institutions such as Bank, NBFI, Insurance Company, Merchant Banker, Asset Management Company etc. and general public. During the last five years (January 2011 to January 2016) history of IPO in Bangladesh, total 61 IPOs have been approved by Bangladesh Securities and Exchange Commission (BSEC) of which 60 companies came under fixed price method and only one came under book building method. Total amount of Tk. 44.33 billion has been raised through IPO and among the companies 39 issues were approved in premium and 22 were at par. Unique Hotel & Resorts Ltd. got the maximum offer price of Tk. 75 per share under fixed price method followed by Tk. 72 per share by United Power under book building method. A publication of KPMG highlighted four major phases describing the exciting and challenging processes for a company that intends to go for public. a. Deciding Get the answers of few questions before making an IPO decision. Why go public? Is your company ready? Are the markets ready for you? Your decision to go public should follow from your longer-term strategic objectives seeking opportunities for growth and value creation. You must step back and evaluate your company and its future potential from an investor’s perspective. Assess the market readiness and timing of 17
The CFO Bangladesh
Feature
IPO
receiving your offer. Timing decision depends on economic factors, market conditions, and pricing considerations—right up to the day the securities are offered for sale. b. Preparing Perform a thorough review of a company for well-prepared presentation to market which not only provides investors with a more attractive investment alternative, but also gives a strong indication of how you do business. Restructure your corporate and management layer that are simple and flexible, and can be adapted to the changing needs of a public company over time. For a successful offering, assembles your team by bringing talents from both inside- members of your board and company management- and from outside (e.g. underwriters, lawyers, auditors and financial advisors). Set a timeline and framework for IPO project management to maintain control throughout the process and develop the final offering. c. Executing Execution is the most crucial phase in the whole IPO process, which starts from preparing your preliminary prospectus. Your issue manager and underwriters will conduct a thorough review of your company and its operations to ensure that your prospectus provides full, true, and plain disclosure. Your preliminary prospectus is then filed with securities regulators and upon receiving the satisfactory responses from you regarding any concerns of them, you will be in a
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position to publish your final prospectus. Through the road-show presentation, you sell your story to potential investors to finalize the pricing of your issue. When your team is satisfied with the final prospectus, you file it, along with certain other information, with the securities commission to obtain the final approval to receive the proceeds in exchange for shares of your company. d. Continuing As you go through the IPO process, the experience of your board and management team, as well as your readiness to operate as a public company, will be the major factors in determining how smoothly you will make the transition to operating as a public company. Now funds are at your hand to implement strategic operating plans, which you committed in your prospectus. As a public company, you are required to comply with securities legislation and the rules of applicable stock exchanges. Other than regulatory matters, developing a proactive and ongoing investor relations strategy is a critical component in sustaining an active aftermarket interest in your company. Muhammad Nazrul Islam, FCMA, Managing Director & CEO of Alliance Financial Services Limited summarizes the regulations and requirement of offering public issue under the regime of BSEC. Methods of IPO A company may raise capital through IPO under two method (1) fixed price method, when offered at par value; or (2) book-building method, when offered above par value.
General requirements for IPO: An issuer may make an application for public offer of its securities, if a) it offers an amount of at least equivalent to 10% of its paid-up capital (including intended offer) or Tk. 15 crore at par value, whichever is higher; b) it has minimum existing paid up capital of Tk. 15 crore; c) it has not made any material change including raising of paid-up capital after the date of audited financial statements as included in the prospectus; d) the issue manager is in no way connected with the issuer nor does hold any of its securities; e) it has prepared its financial statements in accordance with the requirements of the Securities and Exchange Rules, 1987, the provisions of IFRS /IAS as adopted in Bangladesh and audited the same as per Bangladesh Standards on Auditing (BSA) as well as the Companies Act, 1994 and other applicable legal requirements; f) it has got cost audit by professional accountants as per the Companies Act, 1994, if applicable; g) it has got its latest financial statements audited by the panel auditors as declared by the Commission from time to time; h) it has complied with the provisions of Corporate Governance Guidelines as published by the Commission from time to time;
The CFO Bangladesh
Feature
IPO
i) it has been regular in holding annual general meeting (AGM); j) it has complied with all the requirements of these Rules in preparing prospectus; k) it has no accumulated retained loss at the time of application; l) it has complied with the provisions of guidelines regarding valuation of assets, if any, as published by the Commission from time to time; and m) The issuer or any of its directors is not a bank defaulter.
Additional requirements for fixed price method:
Additional requirements for book-building method:
If It has been in commercial operation at least for immediate last 3 (three) years, it has positive net profit after tax and net operating cash flow at least for immediate preceding 2 (two) financial years; if it has been in commercial operation for a period less than 3 (three) years, it has positive net profit after tax and net operating cash flow at least for the latest financial year; if it has not started its commercial operation or not completed any financial period yet, it has positive projected net profit after tax and net operating cash flow; and at least 35% of the issue has been underwritten on a firm commitment basis by the underwriter(s).
a) it has been in commercial operation at least for immediate last 3 (three) years; b) it has made net profit after tax at least for immediate preceding 2 (two) financial years; c) it has positive net operating cash flow at least for immediate preceding 2 (two) financial years; d) it has appointed separate persons as issue manager and registrar to the issue for managing the issue; e) the issuer/issue has been rated by a credit rating company registered with the Commission; f) at least 35% of the issue has been underwritten on a firm commitment basis by the underwriter(s).
Rules/Regulation/Notification: A company must comply the general rules & regulation as applicable for a private and public limited company i.e. Company Act, 1994, Income Tax Ordinance, 1984, Value Added Tax Act, 1991 etc. Besides this, a company should follow the following Rules/Regulation/Notification which is intended to go for listing: Sl No 1 2 3 4 5
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Rules/Regulation/Notification Securities and Exchange Rules, 1987 Securities and Exchange Commission (Issue of Capital) Rules, 2001 Securities and Exchange Commission (Public Issue) Rules, 2015 Securities and Exchange Commission (Rights Issue) Rules, 2006 Notification dated August 18,2013
6
Dhaka Stock Exchange (Listing) Regulations, 2015 and Chittagong Stock Exchange (Listing) Regulations, 2015
7
Notification dated 07 August 2012
Purpose Exchange Rules For additional capital raising other than Public For IPO and RPO For Rights Issue of a Listed Company For Valuation of Assets Listing Regulation
Corporate Governance Guideline
The CFO Bangladesh
Cover Story
CFO-Beximco Pharma
ENHANCED CONTRIBUTION One of the leading manufacturers and largest exporters of medicine in Bangladesh, BEXIMCO Pharma has grown consistently over the years in both top line and bottom line. The company’s Chief Financial Officer, Mohammad Ali Nawaz, FCMA elucidated his role in BEXIMCO Pharma’s growth journey.
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The CFO Bangladesh
Cover Story
CFO-Beximco Pharma
Is the role of the CFO very different in a public limited/stock exchange listed company as opposed to a private organization? In a Private Company the role of a CFO evolves around basic accountancy function i.e. record keeping and reporting, whereas in a listed or public company, the CFO’s role encompasses ensuring return to the shareholders and legal/regulatory compliances in addition to basic accounting functions. Shareholders always expect that organization’s profitability will be better and there will be consistent flow of dividend every year. This is therefore a constant worry of the CFO of any public company. Ensuring compliance is another immense responsibility of CFOs that include Reporting compliances, other compliances imposed by SEC/company law, listing related compliances, corporate governance compliances and other legal compliances. Moreover, as a pharmaceutical company there are various legal compliances from industry perspective, all licenses and renewals absolutely have to be updated and valid at all times. In addition to these, CFO has to ensure organizational policy compliance and budgetary compliance also. Do you think the role of today's CFO is different from what it was in ten years ago? From my experience, not only as a CFO but as an Accounting and Finance professional, in the past, we had no role or very narrow role in strategy, future planning, investment decision and formulation of different policies of organization. But today, in these aspects we play much enhanced role and we contribute significantly throughout the organization. Now we drive the organization rather just ensuring the compliances.
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What’s the biggest challenge you face in your role as a CFO? For me there are two types of challenges as I am working in a pharma company. Firstly, pharmaceutical company is a sales driven or marketing organization where top line orientation is much higher and operation team wants to achieve more and more sales rather focusing on bottom line. But as a CFO, I have to focus on bottom line to ensure the shareholders’ return. When we show our concern regarding various spending, operating team thinks we are obstructing the business. To mitigate this conflict we try to educate our employees about the return expectation of shareholders in a public company. I think, by now we could make everybody understand the concern of general shareholders. Secondly, in Bangladesh compliance orientation in local companies is still at a low level and there is always some degree of resistances from entrepreneurs regarding various issues of regulatory and corporate governance compliances. The other challenge is to manage inter-company/related party transactions on arm length basis. Inter-company and/or related party transactions are inevitable in our country’s perspective. In almost all cases the directors of a public company own number of other private companies and there are lots of cross dependencies among these companies as the business of group companies grow in this manner in Bangladesh. At a later stage when one company of the group becomes Public it is almost impossible to run it independently. CFOs, therefore, need to be alert so that none of the interdependent activities hampers shareholders interest. In our socio-economic scenario it is an immense challenge to make companies compliant in all aspects. How has Beximco Pharma grown so consistently over the years with such strong top line and bottom line?
We have thoroughly analyzed the public company, Bangladesh Pharma industry and accordingly set our growth the CFO’s role strategies.Based on our growth encompasses strategy we always have a five ensuring return years plan. We have been continufor shareholders ously reviewing and monitoring this and legal/regula- plan with the changing dynamics of tory compliances the market. Our detailed planning and continuous monitoring help us in addition to in achieving strong financial basic accountperformance. ingfunction.” “in a listed or
Bangladesh pharmaceuticals market is driven by new products and the more new products you bring in, more new sales. To add new products and to meet the growing demand of existing products we keep expanding our production capacity. On the marketing side we provide much importance on strong rapport with doctors and ensure diversified product portfolio to dominate in prescriptions. For this we always invest heavily on marketing end. Availability of products in the market is also of paramount importance for us. If patient complains about unavailability of products, doctors will drop our product from prescription, so we need to ensure the smooth supply of products in the market through strong distribution network and distribution management. How imperative is the bond between the CFO and CEO whilst working towards Beximco Pharma’s continued growth expansion? The bond is very strong. Basically CEO drives the organization and during this journey the job of CFO is to keep the organization compliant and to ensure returns for shareholders. Here important factor is whatever decision CEO takes, the CFO’s role is to properly manage the required resources (financial or others) to implement the decisions. Hence, CEO should not take any decision which organization cannot afford financially or not desirable from shareholders return perspective. Therefore if CEO and CFO do not work together, ultimate goal i.e. compliant and sustainable organization will not be achieved.
The CFO Bangladesh
Cover Story
CFO-Beximco Pharma
How have accounting methods and techniques changed over the years? Mainly two changes happened in the accounting and reporting arena. First change is in the international accounting standards, lots of changes happened there and we have incorporated all the changes in our recording and reporting. Secondly, management reporting has changed tremendously. At present we need to monitor the performance of each revenue and cost centre and accordingly we need detailed reporting of each of these. Especially for performance evaluation and monitoring, we produce activity based reporting of the functions. Our performance reporting is KPI-KRA (Key Performance Indicator – Key Result Achievement) based. At the beginning of the year KPI-KRA is being fixed in line with the objective of the organization. Say one organizational objective is to increase shareholders return by 1%, so compared to last year how much profit needs to be increased
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and how much of this increased profit will come from sales growth, cost reduction or by efficiency increase from each product, each department or each business segment that is clearly defined. Consequently, performance of every department of the organization is monitored and assessed based on their KPI-KRA. What are the pitfalls you have encountered in the accounting process? In my organization’s perspective, I don’t see any pitfalls in accounting process because we are public listed company, we are also listed on the AIM of London Stock Exchange, for which we need to comply with all the international accounting and financial reporting standards. However, in general, there is always some doubt regarding adherence to IAS or IFRS in financial records and reports by the companies. This non-compliance happens due to lack of qualified resources and unwillingness of entrepreneurs to become compliant.
The mega trend of digitalization is offering new opportunities for CFOs. What is your role to take on this? Automation or digitalization has big role in our organization. At present almost all the functions of each department are automated in my organization; however, all the functions/departments are not fully integrated as the functional software have been developed and implemented on piece meal basis. That’s why we are now implementing a complete ERP solution for the company. Once Implemented the whole organization will be 100% integrated, we shall be able to get all operational data on real time basis and since all functions will be integrated there will be no duplica tion of work. We shall be able to monitor all the operational aspects of the company in a better way thus monitor all the operational aspects of the company in a better way thus increasing efficiencies and reducing cost, resulting better profit and better shareholders return. Through digitalization we can also impose compliance parameters in the operating systems. The CFO Bangladesh
Membership Opportunities
CFO Connect Bangladesh
Services offered to members by CFO Connect Bangladesh: 1 Peer-to Peer Networking and Advisory Get introduced to experienced colleagues that are happy to share their knowledge with you. Peer-to-peer consulting is by far the best way to help finance professionals solve problems. And most cost effective. 5 CFO Magazine 2 The CFO Cafe - Meet and Mingle The CFO Cafe provides a unique opportunity to meet peers and discuss business. Hosted at premium hotels or at the premises of supporting companies. Attending the CFO Cafes - with a
The CFO Bangladesh magazine features regular interviews with thought leaders, and the latest industry news and event coverage. It’s a critical, attractive and provocative tool for reaching the most important C-suite role of all – today’s CFO.
guest list approx. 100 members - will boost your social network.
6 Senior Finance Recruitment Services Members will get top priority to showcase their
3 CFO Directory - Be Known
experiences when asked for any senior position to CFO Connect Bangladesh.
CFO directory a powerful networking resource in Bangladesh's dynamic finance world that allows professionals to stand out. CFO Connect Bangladesh is committed to helping you grow and reach new professional heights.
7 Master Classes - Thought Stimulating Master classes provide career-advancing knowledge and thought-provoking insights. Each master class caters for 50 to 100 professionals.
4 CFO Awards Bangladesh - Financial Excellence: 8 Round Table. Hand-Picked CFO awards Bangladesh is the annual conference for top finance executives. Attendants are
Round tables offer a platform for top finance
treated to an exquisite dinner and CFO award
executives to share experiences. The partici-
ceremony honouring and celebrating the
pants are hand-picked for their unique insights,
country's best performing CFOs .
creating unparalleled level of discussion and debate.
REASONS TO JOIN Save on Conferences: Your membership will earn back its investment after attending only a few events Save on Consultancy: Ask your peers and share ideas and know how. Multiple Returns: Just one tip or valuable contact will give you a ROI many times over of membership fee. Grow: Boost your network and boost your career
TO APPLY FOR MEMBERSHIP http://cfoconnectbd.com/membership/
Feature
Internal Audit
THE VALUED BUSINESS PARTNER Internal audit’s role now extends beyond financial control matters and is playing a vital role in overall risk management, corporate governance, process improvement, cost excellent program &other non-financial reporting issues. It has considered from a much broader perspective to address emerging risk issues on information technology, compliance, fraud and corruption matters. Today’s internal audit is more focused on organization critical matters that ensures reasonable assurance and update to the audit committee how company is being managed properly.
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The CFO Bangladesh
Feature
Internal Audit
T
he role served by the internal audit (IA) has evolved in recent times as like the function of the CFO and the scope of work of internal audit has broadened manifold.Internal audit is being treated as an integral function of the organization like other major functions. However, management of an organization must have a clear idea of exactly what they require from this support function. It is also internal auditor responsibility to elucidate their role and responsibility with clear line of demarcation how effectively they can add value within organization. “Internal auditing helps in improving controls, governance and risk management of the organization as a valued business partner,” Md. Shakawat Hossain Bhuyan, ACA, ACMA(CIMA) Group Head of Internal Audit, SSG (Super Star Group), says. “As an independent assurance and consultancy service provider, internal audit ensures reasonable assurance on fair financial reporting, effectiveness and efficiency of operation, compliance with laws and regulations, optimum utilization of resources and safeguarding of company assets.” While the role of internal audit has changed, that is not to say it has been negated. In the modern corporate times, adaptation of risk based auditing and more involvement in risk management able the function to retain vital holistic and critical perspective on an organization. “Risk based approach is the main changes where focus is on the true value addition through process and control level review and improvement,” says Md. Obaidul Islam Khan, FCA, Head of Internal Audit, Metlife Alico Bangladesh. “In order to foster overall compliance and corporate governance culture, internal audit plays role in processes improvement that require documented policy/SOP and control advisory services. However, design level engagement is not expected to avoid any conflict of interest. Implementation will be ensured through manage ment risk mitigation plan and subse
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and accountable for organization quent follow-up by internal audit,” he added. Internal auditors will rightly argue that their role is crucial to an organization, but many senior management teams may not deem the function as business-critical. Md. Shakawat Hossain Bhuyan feels internal audit of today is more focused on value addition and consultative role that ultimately creates creditability and more attention by management than previous. “Today internal audit attracts management attention more because of its approach of value addition to the business through risk identification and mitigation.” However, Md. Obaidul Islam Khan emphasizes on the top management’s priority to enhance the significance of internal audit function. “Apart from the regulatory requirement, it is management perception or tone at the top on overall COSO Framework that justifies the necessity of internal audit. In reality, internal audit is not a lesser crucial function than any other because it provides the ultimate comfort or independent assurance to investors and add value to the business as a process of continuous improvement.” So, what can be done to ensure the function for gaining greater appreciation? As with any department, product or service, justifying worth is always easier with quantifiable results. Muhammad Dawud Saifullah Fadlullah, Vice President and Head of Internal Audit, Robi Axiata Limited accentuates on proper communication with management and setting SMART KPIs to deliver results which are essential for greater appreciation for the function. “Make sure that control issues identified and communicated to management are relevant, important and will help either strategically or operationally to improve business controls and performance.Like other function IA should have SMART KPIs and performance scorecard that includes both hard and soft measure able targets to make it more effective
and accountable for organization growth.” Balanced combination of internal audit team is also crucial for better gratitude. “The team should be the combination of finance, technology, commercial and general business processes people to ensure that key controls gaps are identified and recommendations are practical and implementable,” he says. Does the head of internal audit sit in the boardroom to bolster the internal audit function? One might wrangle that a range of sub-divisions would subsequently also demand a seat at the top table. According to Mr. Dawud, “The head of internal audit is the secretary of the board audit committee and IA role can be enhanced by having a seat as an observer in management committee meetings and/or senior management meetings.” Md. Obaidul Islam Khan believes the independence of internal audit and appropriate designation is vital to ensure executive grade in the organization. “Internal audit should not engage in any design or operational matters and to report to an individual function. However, independence from operation does not reduce any value of the function as this is the nature of the job. Value depends on the deliverables made by the function. The board/audit committee must ensure that head of internal audit is positioned in executive grade and has appropriate title to ease the interaction with CXOs, board and senior management.” By virtue of the role and nature of the job, CFO is the most important stakeholder of internal audit, so the CFO’s collaboration with internal auditors is pivotal. As one of the key process owner CFO should facilitate head of internal audit and his team to ensure smooth execution of function for greater interest of company. On the other hand, internal audit carries out review and audit in finance function like other primary and support functions to identify the root cause and assist to mitigate the risk. The CFO Bangladesh
Interview
Partner RRH
Mehedi Hasan is a partner of Rahman Rahman Huq, a member of firm KPMG International, which is hallmark of quality, efficiency and professionalism in audit, tax and advisory services. With more than 50 years of operation, the firm continues to be driven by
RESPONSIVE TO REQUIREMENTS
the quest to excel beyond even their own standards. In a career spanning over 15 years, Mehedi Hasan has enriched himself with widespread experiences both in Bangladesh and in the UK across audit, tax and advisory services. He adorns his career with professional qualifications from the Institute of Chartered Accountants in England & Wales, the Institute of Chartered Accountants of Bangladesh, ACCA UK and the Institute of Cost and Management Accountants of Bangladesh. In a candid interview, Mehedi Hasan shares his views regarding profession, the success story and future aspiration of KPMG Bangladesh / Rahman Rahman Huq (RRH).
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The CFO Bangladesh
Interview
Partner RRH
Which experiences helped to shape your career? Having graduation and post-graduation in Accounting & Information System and experiences gained in the UK firms including KPMG UK while perusing professional qualifications and career over there, I came to know about many companies’ including MNCs’ business environment, internal control, reporting systems/ERPs and other IT related audit tools that helped me a lot in my career progression. I was IT trained Auditor (ITA) of KPMG UK and also KPMG’s audit methodology Momentum Manager in addition to my audit role. My US GAAP, SOX and integrated audit experience gave me further boost in career in KPMG UK. My joining in KPMG Bangladesh/Rahman Rahman Huq in 2009 was inspired by one of the founder partners Mr Rezaur Rahman whom I met in London in 2006. It has now been almost seven years with Rahman Rahman Huq/KPMG Bangladesh. Which entity exits here RRH or KPMG? Does KPMG override RRH? Well, both names in Bangladesh belong to one entity which is Rahman Rahman Huq, hence no concept of overriding. Actually, Rahman Rahman Huq is the ‘KPMG Office’ in Bangladesh and eventually it is KPMG Bangladesh. Local law does not allow any chartered accountants’ firm to use any other name other than local name, hence we use KPMG as our logo. We feel proud of our local name because locally people do have significant respect and trust on the name ‘Rahman Rahman Huq’. So our firm is KPMG Bangladesh providing audit, tax and advisory services under the legal name of Rahman Rahman Huq. If any of our advisory assignments/engagements require any external expertise, e.g. forensic experts, ERP
27
experts etc., we ask other countries’ KPMG office(s) to assist us with providing relevant expertise and/or to join us to complete such sophisticated assignments under joint engagement arrangement. Similarly, we provide other countries’ KPMG offices with our resources according to their requirements, e.g. currently four of audit assistant managers are working in KPMG Qatar office and one of our global transfer pricing manager is working in KPMG Singapore office. How have you managed a good working relationship with your clients? The answer is very simple to me. Timely response to the clients’ needs and queries, ensuring the quality and advising/guiding them within applicable laws, regulations, standards and experience are the keys to satisfy our clients and manage the good relationship with them. How has your firm mastered working in a place of weak corporate governance in Bangladesh? Acting with integrity and independence is a key to our professional work. Independence should not be only in appearance but must be in mind. The professional code of conducts, ethical matters and KPMG’s Global Quality and Risk Management Policies were and are being strictly followed by the firm’s past and current leadership. We arrange training on ethical and independence matters and on professional code of conducts on regular basis for all of our professionals. What types of avoidable mistakes do you find companies making in their accounting process? All of our clients have competent and adequate resources, and financial systems/ERPs in their finance function, hence we do not normally see common
errors or mistakes in accounting process. However we all are human and there is possibility of errors. In few cases we see some inconsistency in application of new and/or complex or sophisticated financial reporting standards which require appropriate management judgment, thorough knowledge and training on the technical topics to avoid errors in transaction processing. We provide timely update and guidelines where necessary to our clients through formal/informal discussion, arranging seminar, sharing our technical papers and materials when new requirements come. With a well-earned more than 50 years in the firm’s review, where does RRH/KPMG BD stand today? What does it hope to achieve in the future? We are here because of our founder partners and all of our former senior partners. The firm extremely follows the high performance culture, integrity and independence rule. Our clients stand for us due to our significant level of efforts, quality of work and dedicated mindset to contribute the profession. Our values and our people are our main strength. In future we would like to see the expertise and specialization in every single sub-functions of tax, audit and advisory. We are heavily investing money and time on IT and related training because of transformation and digitalization of business. Now our audits are substantially paperless because for all of our audits we are using electronic audit binder - ‘eAudIT’. Our KPMG’s future audit would be predominantly D&A (Data Analytics) focused. Using D&A tools we would be able to look at the entire population of our clients’ financial transactions and run various routines and automated procedures to identify exceptions so that our audit can focus on risk areas. Two of our partners attended workshop on KPMG’s D&A capabilities in audit. The CFO Bangladesh
Interview
Partner RRH
We have sent six (6) of our audit managers to attend D&A training in KPMG’s regional offices – Singapore and Vietnam. Our firm is building capabilities in IT advisory assignments e.g. ERP implementation, IT security, IT health check, process re-engineering etc. Currently, we have more than sixteen (16) in house IT professionals who are IT/CSE/EEE graduates of reputed universities from home and abroad including BUET with practical experience. How Financial Reporting Act (FRA) will impact on accounting and auditing industry? Financial Reporting Act (FRA) is not a new concept/regulation. This has been in the UK and many other countries for many years. FRA in Bangladesh should have been similar to those in other developed countries. It should appropriately recognise the Institute of Chartered Accountants of Bangladesh (ICAB) for its contribution in accounting/auditing profession since country’s independence. Rules under FRA are yet to be finalized. I hope those will be prepared in such way to improve our audit profession and the quality of financial reporting. If the Financial Reporting Council (FRC) to be formed under FRA is not adequately equipped with qualified resources and also not properly represented from key stakeholders, the general investors will not be benefited from FRA. As the objective of FRA is to regulate mainly statutory audits and chartered accountants, I believe that the representation in the FRC should be more from chartered accountants, it doesn’t matter whether it would be from ICAB or from industry/business or from the practicing firms. The representation in the FRC should also include the industry experts from different industries. Which risks are most significant to finance professionals in Bangladesh? How do they differ from developed countries? I do not see any major risks our professionals are facing, however, there are challenges in process/environment, quality and capability. Sometimes laws and regulations are coming in such a 28
way that implementation of those from practical view point is difficult. For example, some regulations of the Central Bank and BESC contradict with the requirements of financial reporting and auditing standards issued by ICAB. In developed countries, any changes in laws, regulations and requirements are thoroughly discussed with stakeholders and accordingly, if there is any change required in any of the existing requirements of other regulators, this is done to accommodate the new changes. Similarly, in Bangladesh if such level of interaction and synchronization happen among the regulators – the Central Bank, IDRA, BSEC, ICAB, FRC etc.,our professionals can smoothly accommodate the new regulations or changes without facing any risks. Now in BD, all big four accounting firms are present, in few days ago you are only in the local market. How do you see it? Is it a sign of maturity of corporate sector in BD? Right, it is all about the market and our market is growing very fast because of significant increase in economic activities but it is too early to say it is a sign of maturity of corporate sectors in Bangladesh. If the market has the potential, the place cannot be vacant;
somebody will come and fill up the gap. Other three Big-4 firms should have proper presence in our market. Our profession has a long history since British regime and I believe there are local firms who can be member firm of the remaining three Big-4s in full status to provide all audit, tax and advisory services rather than other countries’ Big-4s offices having their own offices in Bangladesh. It would not be helpful for our profession locally here. Are you anxious about your present market share after the entrance of other big three in BD? Not at all. This is good for us, the reason is that our field would be leveled because all Big-4 firms do have their own quality control process and relevant tools & materials, and maintains code of conduct rigorously. We believe the proper presence of other three of the Big-4s like KPMG Bangladesh/Rahman Rahman Huq will no doubt help our profession improve significantly and develop our market with a range of opportunities to meet the requirements of dynamic business environment, transformation and digitalization of the businesses and regulatory changes.
The CFO Bangladesh
Survey
Bangladesh CFO Report 2016
Bangladesh CFO Survey Report 2016
In Bangladesh CFO Survey 2016, total 81 CFOs were participated. The majority of the respondents hail from manufacturing (31), financial service and insurance (17), textile (12), pharmaceuticals (9), construction and real estate (6) and also representatives from automotive, retail, and media sector. 74% of the respondents represent companies with an annual turnover of more than BDT 3,000 million. In addition, 93% of the respondents have average more than 5 years of experience in current role and 63% of participants’ company has limited foreign operations or a part of global company. Key Responses What did Bangladesh’s CFO tells us? • Bangladesh CFOs expect BDT will be around 78 against 1US dollar in 2016. • They are concerned about insufficient skills of support staff and demand of the Board and CEO • Customer experience (customer retention & acquisition) is considered to be the top industry concern. What are they doing about it? • CFOs will be spending their cash on improving current operations. • Increasing focus on growing customers, channels or products is the top strategic priority for CFOs in Bangladesh. • They are also focused on revenue growth from developed markets
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The CFO Bangladesh
Survey
Bangladesh CFO Report 2016
ECONOMIC ENVIRONMENT Bangladesh’s economy is underpinned by political stability, declined inflation, balance of payment surplus; reduced lending rates, stable exchange rate and reserve build up as a result of central bank’s balanced monetary policy. Downside risk persists for the economy emanating from both domestic and external factors. Bangladesh needs to sustain stable GDP and remittance growth, create jobs, contain inflation and improve quality of public services. Bangladesh CFOs expect GDP growth of more than 6.7% in 2016, more than 7.0% in 2017 and 7.1% in 2018. The credit increases in infrastructure spending, hike in wages in the public sector for the acceleration in growth. The growth will further be pushed by eased political tension and rebounded export earnings of the country.
Figure 1: Expectation for GDP growth
Currency CFOs in Bangladesh predict BDT will be marginally stronger against USD in 2016 and stand at around BDT 78 against USD1. However, 60% of CFOs expect BDT will devalue to BDT 80 in 2017 and 52% CFOs expect BDT will be around 81 in 2018 against USD 1.
Figure 2: BDT vs USD
Key Finding: Majority CFOs expect BDT will be marginally stronger in 2016, however it will devalue in 2017 and 2018
Key Finding: Majority of Bangladesh CFOs expect GDP growth of more than 6.5% in 2016
81
80 7.1%
78
7.0%
2016
6.7%
2016
2017
2018
2017
2018
Cash-flow priorities With caution the watchword for CFOs in Bangladesh, 66% are providing top priority to deploy cash into improving current operations, while 59% would like to give highest preference to invest capacity enhancement. Paying dividend to shareholders and retain cash for liquidity rank low amongst CFOs priority.
Figure 3 : Cash-flow priorities Key Finding: The majority of CFOs will deploy cash on improving current operations.
Pay dividends Invest in new business (M&A) Repay debt
24%
21%
45%
31%
14% 21%
59%
Improve current operations
24%
48% 21%
Second priority
10%
21% 3%
66%
Invest in new capacity (CAPEX) Retain for liquidity
41%
45%
Invest in innovation and new product (R&D)
Top priority
30
14%
21%
34%
14%
28%
Third priority
The CFO Bangladesh
Survey
Bangladesh CFO Report 2016
Industry concerns
Customer retention and acquisition is critical to gaining a competitive advantage, about 50% of CFOs express ‘customer experience’ as top pressing concern in 2016. Many respondents are also worried about financial health of primary customer, disruptive power supply and industry regulation and environment of the country.
Key Finding: Customer retention & acquisition is the top most pressing concern of CFOs
Figure 4: Top industry concerns
Competitiveness of the local market
43%
33%
Sustainablity factors relevant to industry
43%
37%
Customer experience ( customer retention
Industry regulation and environment
33%
43%
Availability and retention of talent
43%
Financial health of primary customers
43%
Top most pressing concern
7% 10%
40%
37%
Disruptive power supply
0%
27%
50%
and acquisition)
13%
10%
20%
17% 37%
10%
Second most pressing concern
Third most pressing concern
Risk factors
Global unrest is considered as the significant risk factor by 61% of participated CFOs. This is understandable given the uncertainty surrounding economies in the Middle East and Africa which has direct impact on commodities-based economies such as Bangladesh. Margin deterioration due to input cost pressure is expressed as significant business risk by 41% of CFO, whereas, one third of CFO consider impact of continuing utilities price increases and margin deterioration due to lack of pricing flexibility are also top business risks in 2016. Key Finding: Global unrest and input cost pressure are prioritized as top business risks.
Figure 5: Top business risk factors
28%
4%
12%
11% 61%
14% 40%
61% 48%
Global Unrest
Margin deterioration due to input cost pressure Signifiant Risk
31
38% 40% 48%
Impact of continuing utilities price increases Managable Risk
26% 37% 37%
Margin deterioration due to lack of pricing flexibility
26% 70%
Fragile state of global business recovery (low oil price, slow growth in china, etc.
Insignifiant Risk
The CFO Bangladesh
Survey
Bangladesh CFO Report 2016
BUSINESS ENVIRONMENT Company performance
Notably 81% of Bangladesh CFOs reported a significant or somewhat improvement in their companies performance over the past financial year. The better performance of companies is the result of resilience of Bangladesh economy due to consistently above 6.5% GDP growth, stable foreign exchange rate, boost of export earnings and reserve. Worryingly, 18% of CFOs said their companies’ performance had broadly unchanged or somewhat deteriorated in the past financial year.
Key Finding: 81% of Bangladesh CFOs reported a significant or somewhat improvement in their company’s performance.
Figure 6: Financial performance over the past year
37%
12%
44%
Significantly improved
Remain broadly unchanged
Somewhat improved
6%
1%
Somewhat deteriorated
Significantly deteriorated
Looking ahead, CFOs are more positive about their companies’ growth prospect over the next three years with 44% of respondents are expecting a significant improvement in performance in 2016, 67% in 2017 and 71% in 2018. While 8% of the respondents expect some deterioration in 2016 and none expects deterioration of performance in 2017 and 2018.
Key Finding: More than 90% CFOs expect improvement in performance over the next three years.
Figure 7: Company performance outlook for 2016, 2017 and 2018
44%
67%
71%
Improve Significantly Improve slightly Much the same Deteriorate slightly Deteriorate significantly
48% 21%
32
4% 4%
13%
2016
2017
25% 4% 2018
The CFO Bangladesh
Survey
Bangladesh CFO Report 2016
BUSINESS STRATEGY Increase focus on growing customers, channels or products is the top strategic priority for companies in Bangladesh. Companies are also directing their strategic energy on increase the focus on revenue growth from developed markets, improve operational efficiency and process optimization and improve investor confidence. A reduction in investor confidence may relate to political concerns highlighted by CFOs in the report, which include the need to reduce corruption, deliver more effectively on infrastructure projects, assurance of energy availability and ease of political tension.
Key Finding: Focus on customers, channel or products and revenue growth from developed markets have beccome priorityies
Figure 8: Strategic approach
64%
36%
Increase focus on growing customers, channel or products
57%
43%
Increase focus on revenue growth from developed markets
56%
44%
Improve operational effeciency and process optimization
Currently Following
45%
55%
Improve investor confidence
48% 52%
Focus on growing brand equity
Likely to adopt in 2016
Job stress
CFOs are concerned about meeting the demands of the Board and CEOs and insufficient skills of support staffs. 48% of CFOs are expressed these two are most stressful aspect in their job. They are also stressed about battling to find and retain talent in the organization. More than 50% of CFOs feel most stress or second most stress to manage the pressure from poor performance of the company.
Key Finding: Pressure as a result of demands from the Board and CEOs and lack of skill of support staff are major contributors to CFOs job stress.
Figure 9: Top job stress
Too much adminstrative/low value work
30%
11%
Finding and retaining talent
37%
Insufficient skills of support staff Excessesive workload, roles/responsibilities Demands of the Board and CEO Pressure from poor company performance
Most stressful aspect Third most stressful aspect
33
33% 48%
19%
19%
41%
4% 11%
15%
48% 19%
33%
33%
7%
22% 33%
4%
37%
4%
19%
19%
Second most stressful aspect Fourth most stressful aspect
The CFO Bangladesh
Interview
IBBL CFO
WELFARE BANKING Islami Bank Bangladesh Ltd. (IBBL) is the first Shari’ah based bank in South East Asia with the vision to ensure equity and justice in all financial transaction through welfare oriented banking towards achieving balanced growth and equitable development of the country. During the last three decades IBBL has become the market leader in all the financial and business parameters. EVP & CFO Mohammed Shahid Ullah, ACA shared his journey as CFO and grounds of outstanding performance of the bank.
Mr. Mohammad Shahid Ullah started his career as an internal auditor in BRAC and subsequently joined in Delta Life Insurance Co. Ltd. in 1999 as part of a major restructuring plan of the organization. He joined in IBBL in early 2000 as the investment in-charge of an Authorized Dealer (AD) branch. During his career at IBBL for more than one and half decade, he served in different capacities including leadership of project investment, financial analysis and investment syndication and managership of a large branch before assuming the charge of CFO in 2014. His qualification as a Chartered Accountant immensely helped him to take over the position and contribute towards achieving the goal of the bank. What were the factors that helped in your journey? He always keeps him update in professional knowledge of finance and business focusing on change and time management. Above all, strong professional and ethical standards for ensuring ethical environment in the organization act as the driving factor towards my success. How does a CFO of a Bank create value in banking business? CFO has a very strategic role in a bank. He sets the strategic priorities in line with the vision and mission statements of the bank; facilitates the understanding, evaluation and achievement of the performance of different Strategic Business Units (SBUs) of the bank. CFO plays a vital role in making clear understanding of financial implications in business decision, forecasting financial and business performance and providing early alert to management regarding business and financial performance, ensuring effective leadership in finance and accounting function and enabling adaption of the business model to change in attitude, regulation and availability of resources.
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What are the challenges you are facing in implementation of IFRS/IAS in your financial reporting while following Shari’ah principle in business? How do you overcome it? In fact we do not face any significant challenges in adopting IAS/IFRS while complying Shari’ah principles in banking business. However, some challenges arises due to compliance of Bangladesh Bank circular known as BRPD circular which are departed from some requirement of standards. As Bangladesh Bank is the primary regulator of banking industry, we have to comply with Bank Company Act as well as the BRPD circulars. We also follow Shari’ah accounting standards set by Accounting and Auditing Organization for Islamic Financial Institutes (AAOIFI), Bahrain. We have another complexity regarding Zakat expenditure and Tax obligation. In many countries like Malaysia Zakat expenses can be traded off with tax expenses. In Bangladesh we have to pay both taxes and zakat separately since Zakat is not allowable expenditure in Income Tax Ordinance 1984 of Bangladesh. As a Shari’ah based bank, we also feel a requirement of a separate Islamic Baking Act containing a full guideline for Islamic banks. In the presence of more than 50 conventional and Shari’ah based banks in our market how has your bank been enjoying leading position in terms of profitability and market share? Several unique features have been helping us to lead in this fierce competitive banking industry. We are focusing on ‘welfare oriented’ banking instead of ‘profit oriented’ baking. Unlike conventional banks, profit or wealth maximization has never been the prime objective of IBBL. The bank possesses an in-build financial inclusion that enjoys the confidence of around 10 million customers. In facilitating financial inclusion, we have basket of products and services that The CFO Bangladesh
Interview
IBBL CFO
include from 10 Taka account for farmers, students’ accounts to different other array of products while we extends investment of only Tk.5,000 (five thousand) to the rural people. In line with upholding need prioritization in financing as per Islamic Shari’ah, IBBL does not work to fulfill the need of few people rather focuses on the requirement of the real needs of the common people. The bank refrains from socially and environmentally undesirable investment even the project seems to be financially viable and profitable. IBBL has the unique blending of the employees with diversified academic background and at present more than 13,500 dedicated employees are serving the bank which is the largest amongst the private commercial banks in Bangladesh. What kind of growth opportunities do you see of IBBL in this competitive economic climate? We are expecting to grow in line with our previous trend of business. Keeping focus on our long term perspective plan, we are expecting to have our deposit and investment base doubled by 2021. Our annual average deposit growth is around 20% and we enjoy competitive advantage over our competitors due to our customers’ profound and long tested belief on us. We are currently holding the highest investment portfolio of the country. We are continuously diversifying our products to maintain diversified portfolio both in deposit products and investment products. All these product diversification emanates from customers demand. How would you characterize the banking regulatory framework in Bangladesh? How important is the regulators support? Regulatory support is vital for overall
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governance of the banking industry. Bangladesh Bank is playing the key regulatory role in governing the banks in Bangladesh; whereas, Bank & Financial Institution Division under Ministry of Finance formulates the policies and laws in bank and financial sector. As a bank, we have to comply with the monetary policy of government and directions from regulatory authority. I think existence of strong regulatory frameworks help us to work in a regulated environment. Aside from the finance function, what do you think is your most important duty as the finance head of your organization? CFO position is not limited to financial activities only. The position requires a clear understating of financial implications in any business decision; forecasting financial and business performance and giving early alert to management. CFO is also responsible for ensuring regulatory compliances of the bank. CFO acts as bridge between the Board of Directors and the management to reduce expectation gap. Integration among the business units to achieve the budgeted performance is another key role of CFO. Since CFO sits in different management committee of an organization, he can play a vital role in business integration process. According to you what are the attributes of a successful CFO? Many points came in above discussion. In summary, CFO needs to demonstrate ethical leadership and business integrity, capability of forecasting financial and business performance and give early alert to management, ability of understanding and evaluating the performance of different business units and integrating the business units to achieve the budgeted performance. Moreover, CFOs need the requisite leadership and interpersonal communication skills, including strategic thinking, change management, emotional intelligence, analytical problem solving and decision-making skills.
The CFO Bangladesh
Feature
M&A
CONQUERING THE DEAL M&A is a notoriously difficult undertaking. Important factors for the success of a deal are well executed integration plan, the correct valuation, an effective due diligence plan and the general economic environment.
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The CFO Bangladesh
Feature
M&A
When Merger & Acquisition (M&A) activity intensifies, Chief Financial Officers (CFOs) are well positioned to lead and extract maximum business value from merger integration efforts on behalf of their enterprise. In fact, CFOs role starts from formulation of acquisition strategy stage. While much of M&A activity is focused on driving growth, CFOs who can also realize targeted synergies and cost efficiencies can powerfully differentiate their company’s position in the market for all key constituents - including shareholders, customers and employees. Upon request from The CFO Bangladesh magazine, the Finance Director of Lafarge Surma Cement Ltd. Masud Khan, FCA explains the role of CFO and other decisive elements in sealing the M&A deal successfully. The M&A process starts through assessment of acquisition need and impact on the company after the acquisition takes place. When we are drawing a target organization, obviously there is planning part and also execution part. We are looking to their process, look into our process and then draw a common process. The CFO has to involve both in planning part and execution part. When we do an M&A, normally what happens? There is a question of valuation and question of due diligence also. This valuation part is of course the cup of tea of CFO. Normally the investment banker does the valuation exercise and CFO rigorously involves in the process. CFO has to identify the assets which are earning generating 37
and which are idle. Apart from that CFO role also demands to assess the quality of assets to identify the recoverable and realizable assets. There is something more where CFO may not lead but part in the team which is called discovery phase. Once we decide the merger will take place, we have a number of sessions with other counterpart to talk about our company, how we operate, who are our employees and most importantly cultures of both organizations. In the whole essence of M&A, pre-integration is all about planning; plan all the activities together in terms of how we form our team, how we meet with other team in the discovery phase, how we work toward common business processes and how are we going to work to integrate the systems together. So this is the planning part or day zero in kick of the merger. In the first step of execution we do the target organization. In target organization the first thing comes about job losses and the management of that is very critical. Execution process also includes squeeze the two office space to one, integrate the hardware and software, cutting of the account balance and take a combined opening balance. Integral part of any merger is to define the business processes and systems where CFO’s role is absolutely critical. Any merger will not there unless you successfully integrate the business process and systems. In order to work in unified business process of a merged organization lots of communication and training are required for employees.
The CFO Bangladesh
Feature
M&A
Culture is the biggest enabler, biggest bottleneck and one of the biggest factors why M&A can fail. It makes big difference because every company has its own way of working, own beliefs and own values. Managers of two organizations may ingrain inter-personal skills in different ways and when two organizations come together this creates a bigger problem. To overcome the cultural difference, we have to have a series of meetings, discover each other and strengthen the team building. We must understand and mutual respect each other and pick the good things from both the organizations. Otherwise even merger takes place the grouping and division will remain among the employees. Communication is very vital in M&A. We have to make reguler written and verbal communication to the employees about the happening of change process. We have to very transparent in the process to inform the employees that we implement the board decision, some people can’t stay obviously and we move in one location. The more we are transparent and equitable with employees the more smoother will be the transition process. In M&A aspect, the key external stakeholders are customers and suppliers. We have to create a positive vive to the customers that we are bigger and stronger organization and you will get much more flexibility in product range. Same as customer, tell suppliers that we are bigger organization and your volume of business will go up in merged entity. One of the important synergies which come out of M&A is
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buying bulk from suppliers. We also keep inform the development of stages of merger to regulators like stock exchange, securities & exchange commission and other related regulatory bodies. In addition to CFO, other executive leaders have to play critical role in integration plan to post-deal implementation of an M&A. HR has got a very important role in the integration process followed by sale & marketing, supply chain and of course plant. Target organization implementation is mainly HR job because they have to keep motivate the people who are staying in the merged organization. Don’t think that retained employees are highly motivated and they critically observe the situation of how fairly HR treats the exiting employees because this may apply on them also in future. Though M&A is regular phenomenon in developed world, but is very rare in Bangladesh. Here the problem is that the most of the people like to be their own master, not to become subordinate to other. And business owners are very
optimistic that I may in rough patch now due to economic condition but one/two years later situation will improve and I will make money again. Another factor is, most the companies in Bangladesh are under a group of companies not as a single company. Under group of company’s structure, since sister concerns are doing well, one company may be supported from group to overcome its hard time. In the developed world, there is clear division between owners and managers, the agency concept is very clear there. Owners are shareholders and people in the Board are partly shareholders but mostly professionals. Owner directors play very big role in M&A because they see that M&A is beneficial for both the organizations but MD of two organizations never volunteer M&A because of losing power. But owners will do because they will remain the shareholders of merged entity. In Bangladesh, shareholders are playing executive role also that’s why do not want to lose power by merging with another entity.
The CFO Bangladesh