ISSN 1817-5090

The Cost and Management

(Bi-monthly Journal of the Institute of Cost and Management Accountants of Bangladesh)

THE INSTITUTE OF COST AND MANAGEMENT ACCOUNTANTS OF BANGLADESH

The Institute is an autonomous professional and examining body constituted with a view to regulating the cost and management accounting profession and promoting accounting education, research and allied matters in the country.

Volume XXXIX Number 6 November-December, 2011

Contents
1. 2. 3. Editorial The Council Report
a) Report of the ICMABs Delegation to CMA Management Accountants Conference, 2011 Held During 2Nd to 4Th June, 2011 In Sri Lanka
Th

3 4

EDITOR
Mr. Rafiq Ahmad, FCMA ASSOCIATE EDITORS Mr. Mohammad Abdul Hai, FCMA Mr. Md. Mamunur Rashid, FCMA JOURNAL COMMITTEE-2011 Chairman
Mr. Rafiq Ahmad, FCMA

b) Report Of The ICMABS Delegation to 17 SAFA Board Meeting and Meeting with SAARC Secretary General Held in Kathmundu, Nepal on 25Th and 26Th September, 2011

4.

Articles
a) Interest Rates, Risk Premium, and Cost of Capital in Bangladesh Sharif N. Ahkam, D.B.A Azizur Rahman, FCMA 12

Vice-Chairman
Prof. Dr. Swapan Kumar Bala, FCMA

Members
Mr. A. K. M. Delwer Hussain, FCMA Mr. Mohammed Salim, FCMA Mr. Md. Jasim Uddin Akond, FCMA Mr. Arif Khan, FCMA Mr. Muzaffar Ahmed, FCMA Mr. M. Abul Kalam Mazumdar, FCMA Mr. Md. Abdul Aziz, FCMA Prof. Mamtaz Uddin Ahmed, FCMA Mr. Nazmul Haider, FCMA Mr. Jamal Ahmed Choudhury, FCMA Mr. A.K.M. Nazrul Islam, FCMA Mr. Ranjaneswar Halder, FCMA Mr. Mizanur Rahman, FCMA Mr. A.K.M. Anwarul Islam, FCMA Syed Abu Yousuf, FCMA Mr. Md. Mostaqur Rahman, FCMA Mr. Zahir Uddin Ahmed Chowdhury, FCMA Mr. Naba Krishna Muni, FCMA Gazi Md. Mohsin, FCMA Mr. Nirmal Kumar Sarker, FCMA Mr. Md. Munirul Islam, FCMA Mr. Abul Bashir Khan, FCMA Mr. Md. Abadullah, ACMA Mr. Md. Bakhtiar Alam, ACMA Mr. Mohammad Abul Mansur, ACMA Mr. Bipul Kumar Bhowmik, ACMA Mr. Subash Chandra Das, ACMA Mr. Md. Shafiqul Islam, ACMA

b) Compliance with Corporate Governance Reporting by Listed Companies in Bangladesh Prof. Md Salim Uddin, MBA, FCA, FCMA Lutfun Nahar Begum c) Coal Mine: A Public Management Case Study Kamrul Hoque Maruf, ACMA

17

21

d) Prospect of Forensic Accounting In Bangladesh S. M. Zahir Uddin Haider, FCMA Abu Sayeed Nooruddin Ahmed e)

25

Designing an Information System: Major Considerations, Benefits & Constraints 28 Md. Abdul Hakim

f)

The Relationship of Affective Commitment with Recognition and Empowerment Practices: An Empirical Study Mohammed Rafiqul Alam, MBA, FCMA Mohammad Moinul Haque Mir Md. Tariqul Alam g) Managerial Performance of Insurance Companies in BangladeshDr. Md. Sayaduzzaman Md. Abu Bakar Siddique

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38

5.

Feature : Gender Equality - a crying need

Ruhul Ameen, FCMA

44

Secretary
Mr. Mohammad Mizanur Rahaman Deputy Director, ICMAB

6.

ICMAB News

45

PUBLISHER Mr. Aminul Islam, FCMA Executive Director The Institute of Cost and Management Accountants of Bangladesh

Request for Articles for The Cost and Management - Journal of The Institute of Cost and Management Accountants of Bangladesh
You are requested to submit article/paper for publication in the ICMAB Journal The Cost and Management.

SUPERVISION & LAYOUT Mr. Mohammad Mizanur Rahaman

The following may kindly be treated as broad guidelines for the articles/papers. (a) The articles/papers should be original research based or theme based and should demonstrate the authors own thought and judgment.

COMPUTER COMPOSE & GRAPHICS Idris Ali Al-Chisty

(b) The manuscript must be typed on one side of the paper in double space and normally should not exceed more than 15 pages. Softcopy in CD will be preferred. (c) All notes except those included in the table and diagrams should be numbered consecutively throughout the article. (d) Bibliographical references should be made in defined structure. In case of article, the initiation should be as follows: Authors last name, First name and Middle Initial. The year of publication. Title of the articles , Name of the journal (Italicized), volume number (month or issue). Page number. For example : (In case of article) 1. Nichols. D. 1989 The handbook of Investors Relations Homewood, IL: Dow Jones-I In the text of the article (i) Ahmed (1995) (ii) Khondoker & Mazumder (1993) (iii) (FASB 1986, 9) states. (e) An abstract of around 50 words should be given along with the articles/papers. (f ) Name(s) and designation of the author(s) with the title of the article/paper should be provided on a separate sheet. (g) Two copies of the article/paper should be submitted to:

PHOTOGRAPHY Mr. Md. Moslem Uddin

COVER DESIGN & GRAPHICS Mamoni Printers

PRINTER Mamoni Printers 8 Nilkhet, Dhaka-1205, Phone: 8613138

EDITORIAL AND ADVERTISING OFFICE ICMA Bhaban, Nilkhet, Dhaka G.P.O. Box No. 2629 Telephone No: 9615460 & 9611799 Fax: 880-2-8615703 E-mail: icmab@accesstel.net, icmab@icmab.org.com Website: www.icmab.org.bd

Office of the Editor The Cost and Management The Institute of Cost and Management Accountants of Bangladesh ICMA Bhaban, Nilkhet, Dhaka-1205, Bangladesh. (h) Articles on any demanding topics of Business and Economics can be submitted. But articles on Accounting, Costing, Management Accounting, Business Finance, Financial Management, Taxation, etc. with current concerned development will be appreciated. (i) Articles based on practical experience in various sectors of the economy, specially by members of the Institute will receive perference.

Opinions expressed by the contributors in this Journal are their own and do not necessarily represent the views of the Institute.

The Cost and Management, November-December, 2011

Editorial

Global financial crisis: How does it affect Bangladesh ?

The economy of Bangladesh has grown 5-6% per year since 1996, despite political unrest, poor infrastructure, corruption, insufficient power supplies and slow implementation of economic reforms. Amid global uncertainties, our export growth reached a record high in FY 2010-2011, driven up by RMG sector. Real GDP growth for FY 2012 has been projected to reach 6.3% on supportive domestic demand. The global slowdown in the leading economies such as United States, Europe, and Japan is likely to adversely affect principally in three sectors, namely exports, foreign direct investment and remittance from workers. About 75 % of our exports of garments and knitwear go to the US and Europe. The exports of knitwear and readymade garments are likely to fall in US and Europe because there will be lower demand in those countries as people would keep money with themselves for meeting their basic needs. Despite strong export growth and supportive remittance inflows, Balance of Payment (BoP) pressures are mounting from rising oil and capital goods imports, volatile commodity prices, and weak aid inflows. To reduce poverty in the country and BoP pressures, country needs foreign direct investment (FDI) up to 30% per cent of GDP every year. Whatever FDI was coming to Bangladesh was encouraging but it may slow down considerably. Therefore new business friendly policies may be adopted to attract foreign investment. Our think tank and professional in the country may advise government to address on the following issues avoiding global adverse economic affect in the country: Priority sectors like garment manufacturers may be given more incentives in cutting taxes and customs duties in importing raw materials so that continuation of growth is maintained. Private sectors are likely to discard their employees; as a result, unemployment is likely to increase in the country. The government should keep unemployment in check. Spend money on infrastructure to keep unemployment at bay and will help in enhancing employment and ultimately increasing productivity. Purchasing power must be increased to poor groups by directly through food for works so that their basic needs are met. The volatile situation is both a challenge and an opportunity for Bangladesh to show innovation and creativity to come out from the likely adverse impacts of global economic slowdown.

The Cost and Management, November-December, 2011

The Institute of Cost and Management Accountants of Bangladesh

THE COUNCIL 2011-2013

President
Mr. Zahir Uddin Ahmed, FCA, FCMA(UK), FCMA House # 24, Road # 121 Gulshan, Dhaka-1212, Bangladesh Res. 8810468, 8851533 E-mail: president@icmab.org.bd

Member
Mr. Md. Abdul Aziz, FCMA Director (Finance, Administration & HR) Buildtrade Group, Dhaka Trade Centre (6th Floor) 99, Kazi Nazrul Islam Avenue Karwan Bazar, Dhaka-1215, Bangladesh Off: 9121866, 8158451 Cell: 01819-242036, 01730734375 Fax: 88-02-9143389 E-mail: aziz@builtradegroup.com, abdul.aziz49@yahoo.com

Vice-President
Mr. A. K. M. Delwer Hussain, FCMA Director (Finance) Bangladesh Sugar & Food Industries Corporation Chini Shilpa Bhaban (4th floor), 3, Dilkusha C.A. Dhaka-1000, Bangladesh Off. 9565866, Cell : 01711-171650 E-mail: delwer_fcma@yahoo.com

Member
Prof. Mamtaz Uddin Ahmed, FCMA Department of Accounting & Information Systems Faculty of Business Studies University of Dhaka Dhaka-1000, Bangladesh Off. 9661920-73/7891, 7906 Res. 9668889, Cell : 01816-235109, Fax: 88-02-8615583 E-mail: mamtaz_uddinahmed58@yahoo.com

Vice-President
Mr. Mohammed Salim, MBA(UK), FCMA General Manager (Finance) Power Grid Company of Bangladesh Ltd. (PGCB) IEB Bhaban (3rd Floor), Ramna Dhaka-1000, Bangladesh Off. 95554754, 9558054, 9553663/25 Cell : 01711-644859, 01911-360928 E-mail: gm_fin@pgcb.org.bd Secretary Mr. Md. Jasim Uddin Akond, FCMA Comptroller Bangladesh University of Engineering and Technology (BUET) Dhaka-1000, Bangladesh Off. 9665615 (D), 9665650-80/7146 Cell : 01713-083618, Fax: 88-02-8613046 E-mail: jakond64@yahoo.com

Member
Mr. Abdul Mannan, FCMA(UK), FCMA House # 23A, Road # 1 Dhanmondi, R/A, Dhaka-1205, Bangladesh Tel : Off. 9558414, 9551044. Res : 9662702 Fax : 88-02-9569173

Member
Mr. Nazmul Haider, ACEA(UK), FCMA Head Finance, SCM & Company Affairs Perfetti Van Melle Bangladesh Pvt. Ltd. 8 Abbas Garden (2nd Floor) Cantonment Board, Mohakhali, Dhaka-1206, Bangladesh Te: Off. 8837508-9, 8711848, Fax : 88 02 8711261 Email : nazmul. haider@bd. pvmgrp.com

Member
Mr. Jamal Ahmed Choudhury,
B. COM.(HONS), M.COM, MBA, FCMA

Treasurer
Mr. Arif Khan, FCMA, MBA, CFA Member Securities and Exchange Commission Jiban Bima Tower (14 floor) 10, Dilkusha C/A Dhaka-1000, Bangladesh Cell : 01713-019446 E-mail : secbd@bdmail.net

Executive Director- Accounts & Finance Beximco Pharmaceuticals Ltd. House No. 19, Road No. 7 Dhanmondi R.A., Dhaka-1205, Bangladesh Tel : Off. 8619151-5 Cell: 01713-015254 Fax : 88-02-8613888 Email : jac@bpl.net

GOVERNMENT NOMINEES
Member
Prof. Dr. Mijanur Rahman Treasurer Dhaka University, Dhaka, Bangladesh Mob : 01713-453040

Member
Mr. Md. Shawkat Ali Waresi Joint Secretary Ministry of Commerce Government of the Peoples Republic of Bangladesh Bangladesh Secretariat, Dhaka-1000, Bangladesh Off: 7167212, Email: waresi-bangladesh@hotmail.com

Member
Mr. Muzaffar Ahmed, FCS, FCMA President and CEO Credit Rating Information and Services Ltd. Nakshi Homes (4th floor) 6/1-A, Topkhana Road, Segunbagicha, Dhaka-1000, Bangladesh Off. 9565780(D), 7173700-1, Res. 8314189 Cell : 01819-213014, Fax: 88-02-9565783 E-mail: mahmedcrisl@gmail.com

Member
Mr. ARM Nazmus Sakib Joint Secretary & National Consultant DMTBF Project, , Finance Division Ministry of Finance Government of the Peoples Republic of Bangladesh Bangladesh Secretariat, Dhaka-1000, Bangladesh Email: mchowdhury_fin@yagoo.com

Member
Mr. M. Abul Kalam Mazumdar, MBA, FCMA, FIMC Executive Vice-President & Director Anlima Group 4/3, City Heart, 67, Naya Palton Dhaka-1000, Bangladesh Tel : Off. 9341373, 9349881-4, 8317216 Res: 9112234 Fax: 88-02-8317184, Cell. 01711537482 Email : kalam1227@dhaka.net

Member
Khandaker Rakibur Rahman Joint Secretary, Ministry of Industries Government of the Peoples Republic of Bangladesh Shilpa Bhaban 91 Motijheel, C.A. Dhaka-1000, Bangladesh Off: 9563559, Mob : 01556-343796 E-mail: jnbiswas16@yhahoo.com

The Cost and Management, November-December, 2011

REPORT OF THE ICMABS DELEGATION

REPORT OF THE ICMABS DELEGATION TO CMA MANAGEMENT ACCOUNTANTS CONFERENCE, 2011 HELD DURING 2nd TO 4th JUNE, 2011 IN SRI LANKA
The annual conference of the Institute of Certified Management Accountants of Sri Lanka (ICMASL) titled, CMA Management Accountants Conference-2011 was held during 2nd June to 4th June, 2011 at Colombo, Sri Lanka. Following members of ICMAB attended the conference: a. b. c. d. Mr. Zahir Uddin Ahmed Mr. M. Abul Kalam Mazumdar Mr. Md. Abdul Aziz Mr. Jamal Ahmed Choudhury President Council Member Council Member Council Member

As per request of the ICMASL the ICMAB Council nominated M. Abul Kalam Mazumdar to present a technical paper in the conference. He presented a paper on Enterprise Risk Management: Role of Cost and Management Accountants . The ICMASL arranges for international conference once in a year and this conference was part of such annual conference. This years conference theme was CMAs to Innovate and Drive Value and it coincided with 12th anniversary of ICMASL. On this eve the Institute also arranged for CMA Awards for Excellence in Business Management. A total of six awards were given to personalities from the corporate sector, who have demonstrated their outstanding performance. The conference was inaugurated by Hon. Rishad Bthiudeen, Minister of Industry and Commerce. A total of twenty-one papers in seven sub-theme sessions were presented in the conference. There was also one panel discussion of seven CEOs/senior business executives on CMAs role in business. The outline of the papers presented in conference are placed below:

sustainability reporting, standard disclosure requirements and recent trends in such reporting. Ms. Rajakariar also made recommendations for improved reporting. He has mentioned that the intention of reporting is not only to present a picture of good corporate citizenship, but to provide stakeholders with confidence that the enterprise is in good health and will not be a burden on society eventually. There should be assurance of its consciousness to play its role as a responsible member of society. The need exists for the reports to provide information of financial stability and projections for remaining so in future. c. Sustainable development through innovative interventions Mrs. Parveen Mahmud, President ICA, Bangladesh. In her paper Mrs. Parveen Mahmud, has provided an overview of poverty alleviation initiatives and interventions focusing on experience from Bangladesh with specific reference to PKSF. The speaker explained the financing procedure of PKSF and need based innovative financial products offered, diversity of credit schemes, seasonal products offered, household development programs undertaken and services like: micro insurance, climate change and information technology. To assess the impact of microfinance interventions different studies are also conducted by the PKSF. While concluding, the speaker mentioned that it is increasingly recognized that an enabling environment helps the growth of the sector for poverty reduction and the program should be part of the countrys overall financial sector.

1. Sustainable Value Creation

a. Achieving Sustainable Growth and Profitability Mr Ronnie Peiris, Finance Director John Keells Group. Mr Peiris in his paper, while explaining sustainability concept, has emphasized that the business world of today has made a major shift from previous social responsibility concept. In earlier concept, The Social Responsibility of Business is to increase its profits , the social aspects were the responsibility of the government, charities and trade associations. Over the last two decades there has emerged an expectation that Business has to serve the needs of all stakeholders and be conscious of the effects that operation of business has on the resources -- particularly when depletion of resources is concerned. All stakeholders are now increasingly becoming aware of the seamless integration of sustainability into all aspects of business. b. Global Reporting Index (GRI) Ms Aruni Rajakariar, Country Manager, ACCA Sri Lanka. The speaker, in her deliberations, has explained the need for sustainability reporting, principles and guidelines about The Cost and Management, November-December, 2011

2. Corporate Performance Management and Capital Market

a. Implementing Activity Based Costing (ABC)- P Thiruvengadam Partner, Deloittes India. The paper outlines how cost leadership strategy can benefit organizations to gain competitive advantage, explains how it supports other functions of management, different techniques and strategies for analyzing, impacting and reducing cost. The paper describes how traditional cost measurement can be transformed into strategic cost management. Based on the three themes: value chain analysis, strategic positioning analysis and cost driver analysis 5

REPORT OF THE ICMABS DELEGATION

the paper elaborately discusses how the ABC can help in customer product profitability, provide management information, integrate with performance management for ultimately assisting in profit improvement. b. Impact of Flexible Remuneration on Corporate Performance Management Mr. Dinesh Weerakkody, Managing Director, Cornucopia Lanka Ltd., Sri Lanka. c. The Strategic Role of the Capital Market Mr. Hasitha Premaratne, Chief Financial Officer, Barndix Lanka Ltd., Sri Lanka. The paper gives an overview of how capital market helps equity investment of companies. It discusses in depth the strategic role capital market can play for the stakeholders: mainly from company, investor and economic perspective. management auditor can play their due role to manage and exploit both downside and upside of the risks for the sustainable growth of enterprises. c. Corporate Governance and its implications on the corporate world Dr. Harsha Cabral Presidents Counsel. Giving a brief description about importance of corporate governance in organizations the paper has discussed mandatory code of corporate governance and voluntary code of best practice on corporate governance in Sri Lanka.

4. Contemporary Management Accounting

a. Carbon Credit Accounting - Mr. Iresha Somarathna, Brandix Ltd., Sri Lanka. The author in his paper has given an account of global carbon emission and its impact on the environment. He has demonstrated the examples of how the whole world is suffering due to carbon emission and its cost the society is incurring. He has presented a map for sustainable environmental management for restoring ecobalance. The author has also discussed a case of Sri Lankan company where targets for environment mitigation has been made for key natural inputs like: energy, air, water and waste landfill and how these are brought to the target level. b. Leveraging Supply Chain to Corporate Finance for Excellence Mr. Mohammed Hanif Ajari, Vice President, ICMAP. The paper discusses the importance of integrating supply chain with finance. In this regard he has discussed the need for alignment of business strategy with supply chain, links between supply chain and finance, link between operational KPIs and financial statement, economic value added (EVA) and resultant operations impact on profitability, asset utilization and financial leverage efficiency. While concluding, the author has mentioned that organizations can take several important steps to help establish the link between effective supply chain management and improved financial performance. It is important that top management commits to developing an understanding of how supply chain performance can impact financial performance. c. Management Accounting for the Plantation Sector Mr. Jayampathi Molligoda, Director, Strategic Planning, Bogawantalawa Tea Estates, Sri Lanka. In the paper the author has brought the case of Bogawantalawa Tea Estates that, from a losing concern has been converted to a profitable one. The author has demonstrated how management accounting models of alternative plantation options can help management to chose the better one and make the project profitable.

3. Strategic Risk Management and Corporate Governance

a. Strategic Risks -Exploiting the Upside Mr D S W Andradi, Partner, SJMS Associates, Sri Lanka. The author has aptly brought the recent global socio economic media headlines to explain the gravity of risk the world is facing. Explaining the traditional downside of risks he has discussed how the strategic risk management can exploit the upside for converting the risks into opportunities. To support the justification for strategic risk management the author has elaborately brought in bunch of political and business cases from the recent world history. The author concluded by inferring that in case of enterprises risk management the board of directors and senior management should ensure that huge upside risks should be exploited whilst the downside of strategic risks are effectively managed. b. Enterprise Risk Management Role of Cost and Management Accountants Mr. M. Abul Kalam Mazumdar, ICMAB, Bangladesh. The author has discussed the importance of risk management in organizational context, distinction between the traditional and enterprise risk management (ERM), benefits of its management, risk management process and how it can help in corporate governance of organizations. He has discussed the status of ERM in the South East Asian region based on different survey findings. Explaining the role that management accountants can play for ERM he has mentioned that, the management accountants as integral part of management, or as management consultant or as cost and 6

5. Establishing a Globally Competitive Program for Management Accountants

a. Building a Global designation with rigorous education and experience program - Ms. Desley Ward, Manager Education, CPA, Australia. It was a paper on CPA Australias education curriculum, assessment process and career pathway. The Cost and Management, November-December, 2011

REPORT OF THE ICMABS DELEGATION

b. A new curriculum for Management Accountants Prof. Mangala Fonseka and Mr Nuwan Gunaratna Accounting, Department University of Sri Jayawardenapura, Sri Lanka. The paper is on the recently developed curriculum of Cost and Management Accountants of Sri Lanka (CMASL). It discussed in depth the methodology followed for development of the curriculum to make world standards. c. Meeting the Education Needs of Accounting Programs Pippa Riley Manager, BPP Ltd. UK. Ms. leading outsourcing companies of the world. WNS delivers an entire spectrum of business process outsourcing services such as finance and accounting, customer care, technology solutions, research and analytics and industry specific back office and front office processes. WNS has over 21,000 professionals across 23 delivery centers worldwide including Costa Rica, India, Philippines, Romania, Sri Lanka and United Kingdom. In his presentation he has outlined the success story of the group in Knowledge Process Outsourcing (KPO). b. Shared Services Centres to transform Finance Function Mr BS Krishna, Adviser, Tata Business Support Services Ltd., India. The paper demonstrates how shared service center in Tata Business Support Services reduces the size of operating and finance department without sacrificing the performance and bringing higher profit. The paper elaborately discusses the shift in next generation shared services, evolution of shared service center, the shared service journey, sourcing, possible sourcing options, location, governance and service pricing. c. Leveraging Cloud Computing for Greater Business Agility Mr Ramesh Shanmu- ganathan, Executive Vice President/ Group Chief Information Officer, John Keells Holdings Plc., Sri Lanka. The paper demonstrates the meaning and importance of cloud computing in the context of todays business environment, its key characteristics, its comparison with IT investment, its advantage and disadvantage, options available for cloud computing, issues to consider, the procedure to be followed, its critical success factors and its implementation.

The paper is promotional presentation on BPP Learning Media, a recently accredited university college of UK. It projects the education needs of accounting profession, stakeholders, expectations of accounting service takers, challenges the profession is facing, the education requirement as per IAESB, UNCTAD Model and efforts of BPP Learning Media. A panel discussion was also held on theme and all representatives of SAFA member bodies participated in the discussion.

6. Diversified Roles of Management Accountants

a. Financial Reporting and Compliance with IFRS Mr. Sanath Fernando Partner Ernst & Young, Sri Lanka. From 1st January, 2011 the Institute of Chartered Accountants of Sri Lanka (ICASL) has adopted international financial reporting standards (IFRS) by issuing Sri Lanka Financial Reporting Standards (SLFRS) and Sri Lanka Accounting Standards (SLAS). The paper has discussed the implementation process, risks associated with its implementation, challenges to be faced, benefits to be derived by CFOs, considerations for project management and how it can impact the business. b. Critical Issues on Islamic Banking and Financial Markets Mr Hassan Bilgrami President, ICMA Pakistan. c. Tax Planning Strategies Mr. N R Gajendran Partner, Gajma & Co., Sri Lanka. The paper discusses the tax planning principles, salient points to be considered for tax planning, international tax planning techniques, and promoting Sri Lanka as an offshore Centre.

8. Innovating and Driving Value to Business

The eighth session of the three-day conference was panel discussion on CMAs Role in Adding Value to the Business. There were seven panelists drawn from different strata of Sri Lankan business arena. They represented telecommunication, logistics service, multinational company, bank, IT and other commercial sectors. The conference was one of the successful conferences that could bring so large number of CMA and other accounting professional leaders who have discussed so many contemporary issues of todays business world within just two working days sessions. Members of ICMA can up date their knowledge and experience through these papers. November 3, 2011 M. Abul Kalam Mazumdar, FCMA Council Member & Past President

7. Value Added IT Services

a. How KPO is Driving the New Era in Value Creation - Mr Dushan Soza, Managing Director, WNS Global Services (PVT) Ltd., Sri Lanka. Mr Dosan Sozas organization, WNS (Holdings) Limited is one of the

The Cost and Management, November-December, 2011

REPORT OF THE ICMABS DELEGATION

REPORT OF THE ICMABS DELEGATION TO 17TH SAFA BOARD MEETING AND MEETING WITH SAARC SECRETARY GENERAL HELD IN KATHMUNDU, NEPAL ON 25TH AND 26TH SEPTEMBER, 2011
The 17th SAFA Board meeting was held at Radisson Hotel, Kathmandu, Nepal on 25th September, 2011. Following members of ICMAB attended the conference: a. Mr. M. Abul Kalam Mazumdar - Council Member b. Mr. Md. Abdul Aziz - Council Member The meeting was attended by all the member institute representatives and presided over by SAFA President, Mr. A. N. Raman. Apart from confirmation of minutes of last meeting the following important issues were discussed and decided upon. SAFA Assembly meeting held on 9tth January at Chennai, India. In line with the discussions held at the 72nd SAFA Assembly meeting the President SAFA has proposed that a MoU be signed with EFFA. The objectives of the MOU are : a. Exchange documents reflecting challenges faced by the SMEs and Small and Medium Practitioners (SMPs) of the Accountancy profession in the matters relating to compliance of evolved and evolving global accountancy related regulations and standards. b. Exchange documents reflecting challenges faced by the SMEs and SMPs of the Accountancy profession in the matters relating to understanding and adopting useful practices of the respective regions they represent in improving the sustainable performance and value creation. c. Collaborate in organizing events in the South Asian and European Region under a joint banner to enable the networking of SMPs and SMEs from the respective regions. d. Exchange views on matters of common interests to the accountancy and auditing profession of both regions wherein a combined voice can bring visibility to the global standard setting bodies.

1. Proposed SAFA-EFFA Alliance

A three-member SAFA delegation led by its Vice President, Mr. Muhammad Rafi attended European Federation of Accountants and Auditors (EFFA) conference in Berlin on 12th May, 2011. Two SAFA delegates were also speakers in two panel discussion sessions. As an outcome of successful representation of SAFA in the EFFA, the EFFA President has expressed interest to hold joint seminar in New Delhi during 2nd and 3rd November, 2011. The EFFA has also shown interest to have an alliance with SAFA as both are acknowledged accountancy grouping of IFAC. The matter was discussed in 72nd

The Cost and Management, November-December, 2011

REPORT OF THE ICMABS DELEGATION

e. Create an enabling mechanism or platform which can influence the SMPs of both regions come together, network or establish relationships which will mutually benefit them at an individual or firms level. After detailed discussion on the above objectives, the SAFA Board approved for signing of the MOU during the EFFA delegations next visit to Delhi. also been recommended for inclusion as a new category. The Board approved the above category as proposed.

5. Nomination of SAFAs representative on the Standards Advisory Council (SAC) of IASB.

Mr. Reyaz Mihular, Chairman Committee on Accounting and Auditing Standards of SAFA is also a member of Standards Advisory Council (SAC) of IASB. As his tenure is going to expire on 31st December, 2011, the Board approved for re-nominating him for the SAC for another term of three years.

2. Proposed MOU with Global Reporting Initiative (GRI)

GRI is the only global body which has promoted and institutionalized sustainability movement and reporting. With reference to SAFAs sustainability efforts following events were quoted in the meeting: a. Joint committee of ICMAP and ICAP has announced Sustainability awards in Pakistan ; b. ICAB is holding International Conference in November, 2011 on the theme, Sustainable Development ; c. An article written by SAFA President on Integrated Reporting was published in a leading daily in India ; d. The CAPA conference at Brisbane saw an exclusive slot for SAFA on the topic of sustainable processes as an integrated management framework ; and e. SAFA has drafted its strategy matrix incorporating sustainability as a part of its strategic theme. In order to take further initiatives on sustainable development President SAFA has proposed that a MOU be signed with GRI. The Board agreed in principle to sign a MOU at Dhaka in November, 2011.

6. Meeting of the SAFA Board members with SAARC Secretary General

SAFA being the apex body of SAARC needs to have good liaison with the SAARC Secretariat. In order to enrich its relationship with SAARC the SAFA Board arranged for a briefing meeting with SAARC Secretary General on 26th September, 2011. The delegation visited the SAARC Secretariat as scheduled. Due to illness the Secretary General could not attend the meeting. Mr. Azizuddin Ahmadzada Panjshiri, Director from Afghanistan and Mr. Amrit Lugun, Director from India represented SAARC secretariat in the meeting. At the outset the Director briefed about SAARC activities. He acknowledged that SAFA is one of the five apex bodies of SAARC. SAARC also has 17 other recognized bodies. The SAFA President explained the development efforts of SAFA in the field of accountancy and finance of the region. He explained SAFA Action Plans initiated in Kathmandu Declaration in 2010. He also explained the SAFA strategy matrix developed in line with SAARC initiatives. Copies of SAFA Strategy matrix along with the SAFA plan of activities were handed over to the SAARC Directors. The copies of these papers are enclosed in Annexure-A of this report. The Directors expressed their keen interest in the activities of SAFA and volunteered to participate in key activities of SAFA, if invited. The Directors also requested to include Maldives and Bhutan in the SAFA. The SAFA delegation requested for arranging SAARC visa for SAFA Board and Committee members in order to facilitate free movement of SAFA members.

3. Draft Bye-Laws of SAFA

The Sub-Group formed for drafting Bye-Laws of SAFA submitted the draft in the Board. The Board unanimously agreed to recommend it for approval in the next Assembly of SAFA.

4. Revised Category for SAFA Best Presented Accounts Awards Competition 2010.
The revised category as recommended by the Committee for Improvement in Transparency, Accountability and Governance (ITAG), the SAFA Board at its 16th meeting had recommended the following categories for approval before the SAFA Assembly, for Best Presented Accounts Awards Competition 2010: 1. Banking Sector 2. Insurance Sector 3. Financial Service Sector 4. Manufacturing Sector 5. Service Sector (Excluding Communication & IT) 6. Communication and IT Sector 7. Non Governmental Organizations 8. Agricultural Sector(new) 9. Public Sector Entities 10. Corporate Governance Disclosure Awards Earlier it was proposed to have separate Corporate Governance Disclosure Awards but the proposal has been dropped by including it as one of the SAFA BPA awards category. Agricultural Sector has

7. Forthcoming SAFA Events

a. The SAFA and EFFA are going to hold joint seminar at New Delhi on 2nd and 3rd November, 2011. b. ICAB is holding SAFA BPA Awards, RSS Conference and International Conference during 27th-30th November, 2011 in Dhaka. SAFA assembly and Board meetings would also be held during the period. It is the turn of ICMAB to hold the next SAFA Vice President position. Among others, the next SAFA Assembly would consider the nomination of ICMAB as Vice President for next year who will ultimately proceed as SAFA President in the following year. As such the SAFA President has requested for sending ICMABs nomination for SAFA Vice President for consideration in the next Assembly meeting to be held in November. M. Abul Kalam Mazumdar Council Member & Past President

November 5, 2011

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REPORT OF THE ICMABS DELEGATION

Annexure-A

THE KATHMANDU DECLARATION AND THE ACTION PLAN

PARTICIPATING COUNTRIES
BANGLADESH INDIA NEPAL PAKISTAN SRILANKA

SAFA SUMMIT 2010 ON SUSTAINABLE DEVELOMENT OF SAARC

1. WE THE LEADERS OF THE NINE PROFESSIONAL ACCOUNTING INSTITUTES UNITED UNDER THE BANNER OF THE SOUTH ASIAN FEDERATION OF ACCOUNTANTS OF THE SAARC REGION, HEREBY REAFFIRM OUR COMMITMENT TO PURSUE WITH UTMOST ZEAL AND DETERMINATION THE GOALS SET BELOW IN THE 2010 SAFA SUMMIT AT KATHMANDU IN FACILITATING A SUSTAINABLE DEVELOPMENT OF THE SAARC REGION. WE RECOGNISE THAT:

2.

2.1 the aspirations and development goals of the SAFA member economies can be realized only through inclusive growth and sustained exploitation of natural resources which leaves a safe and healthy living for the future generations. 2.2 imbibing the above realization in the processes of the enterprises and the governments are esential to achieve the goals of sustainability. 2.3 we as accounting institutes will play a facilitating role in influencing the enterprises and our governments to imbibe the above processes and will drive our members to acquire the relevant skills and competencies for participating in a sustainable development process. 3. CONSCIOUS OF THE ABOVE FACILITATING ROLE WE PLEDGE IN SAFA TO THE FOLLOWING ACTION PLAN OVER THE NEXT FEW YEARS: 3.1 to develop and conduct continuous education programs for the members reflecting the goals of sustainable development. 3.2 to develop guidance notes which can be adapted by the member bodies on region specific accounting issues within the global standards framework. 3.3 to conduct surveys independently or in collaboration with other regional bodies in the SAARC region to identify the gaps in the financial management practices of enterprises supportive of sustainable development. 3.4 to participate proactively in the integrated framework being developed for sustainable reporting at a global level and flag the region specific perspectives which need to be factored into by the working group even at draft stage. 3.5 sincerely review the progress being made on the above goals in the forthcoming events of SAFA In accord with the approval by acclamation at Kathmandu on this 12th day of December 2010, and in witness of our pledge and commitment, we have individually affixed our signatures to this Declaration. Text signed by the representatives of the member bodies and the President and Vice President of SAFA. President SAFA Vice President SAFA The Institute of Chartered Accountants of Bangladesh The Institute of Cost and Management Accountants of Bangladesh The Institute of Chartered Accountants of India The Institute of Cost and Works Accountants of India The Institute of Chartered Accountants of Nepal The Institute of Chartered Accountants of Pakistan The Institute of Cost and Management Accountants of Pakistan The Institute of Chartered Accountants of Sri Lanka

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REPORT OF THE ICMABS DELEGATION

SAARC ALIGNED SAFA STRATEGY MATRIX

7 Poverty Alleviation 6 Environment 5 Human Resources Development 4 Technical Committee on Education 3 Cooperation in the field of finance and related areas 2 Group on Customs cooperation 1 Coordination Board
Sustainable Business Practices and Reporting in SAARC

Standing Group on Standards and SAARC standards

Setting Standards of Evaluation ( or) SAFA level frameworks Studies, Surveys and Documents of Gap Analysis vis a vis standards

Ethics Framework and Corporate Corruption in SAARC

SAARC Governmental Accounting and Taxation

Corporate Governance Standards in SAARC

Capacity Building of SAFA SMP

SAFA VISION TO POSITION , MAINTAIN AND DEVELOP THE ACCOUNTING PROFESSION IN THE SAARC REGION. POSITION OF EMINENCE AND PUBLIC INTEREST. BROADER ROLE IN THE REGIONAL ECONOMIC DEVELOPMENT.

Uniform Accounting Education Framework in SAFA

SAFA Strategic Themes

Committee Action Plan to Align With Role SAFA Committee Scope Alignment with Stratetgy

A Accountability and Governance B Committee on Accounting and Auditing Standards C Committee on Professional Ethics and Independence D Committee on Education, Training and CPD E Committee on Quality Control F Committee on PAIB G Committee on Small and Medium Practitioners H Regimes in SAFA I Accounting SAFA level task SAFA PR EVENT
Committee on Harmonisation of Fiscal and Tariff Committee on Governmental and Public Enterprises

Committee For Improvement in Transparency,

J Task Force to review SAFA constitution K SAFA Summit Organising Committee

These bullets refer to the positive link between rows and column along with the information contained. For example, the green bullet appearing in Committee on Education and Training is correlated with the SAFA strategy on harmonising the syllabus between the member bodies.

The Cost and Management, November-December, 2011

International Cooperation and Joint Events

Workshops and Seminars theme focussed

SAARC Areas of Cooperation

Sharing of common resources between member bodies

POLICY TARGET BENEFIT

RESOURCES

11

Finance Interest Rates, Risk Premium, and Cost of Capital in Bangladesh

Sharif N. Ahkam, D.B.A * Azizur Rahman, FCMA**
Abstract: The weighted average cost of capital (WACC) is the minimum required return a firm must earn on its capital projects in order to generate the minimum returns required by the suppliers of long-term capital. This generally serves as the discount rate the firm uses to evaluate capital budgeting projects. In the context of Bangladesh, we need to make some modifications to the standard procedure for determining the cost of capital. The prevailing interest rate in the country play a significant role in determining the WACC and currently, the rates are very high. The interest rates, in turn, are significantly influenced by the inflation expectation. We also need an estimate for market return and we do not have a good proxy for that at this point. Further, the way companies are resorting to bonus shares as a mode for dividend payment is complicating market return estimates. In addition, the presence of a 10 percent tax rebate for certain dividend paying firms requires a unique type of modification in the equation for required return on shareholder equity. This article suggests using a 30 percent required return for equity investors under the prevailing market conditions. Keywords: Weighted average cost of capital, capital asset pricing model, inflation expectation, risk premium.

Introduction
Cost of capital for a business entity is the minimum required return it must earn in order to generate and satisfy the minimum returns required by the suppliers of long term capital. This generally serves as the discount rate the firm uses to evaluate capital projects. This discount rate is significantly influenced by the prevailing interest rates in the country. Textbooks usually suggest that companies should use the weighted average cost of capital as its discount rate. Determining the weighted average cost of capital is fairly straightforward. First, the weights of individual components in the firms capital structure are determined. Second, the required returns for individual components are determined. Next, we simply plug in the numbers in the usual weighted average cost of capital (WACC) equation and the result is used to discount average risk capital projects. We can adopt the procedure for determining the cost of capital for a firm in Bangladesh, but some modifications are necessary. The mode of dividend payment poses some unique problems. The tax rates are also different for different companies which need to be recognized in the WACC equation. The presence of a 10 percent tax rebate for certain dividend paying firms requires a unique type of modification in the equation for the required return on shareholder equity. This paper deals with several of this type of issues that may affect the cost of capital estimation for a typical firm in Bangladesh. However, a brief discussion on the interest rate environment in Bangladesh is in order.

Where krf is the nominal risk-free rate of return, IP is the premium for inflation expectation, and krr is the real risk-free rate. According to the data available from Trading Economics, the inflation rate in Bangladesh over the last 31 years (1980 through 2010) ranged from a low of 1.91 percent in 2001 to a high of 15.39 percent in 1980. There were periods of double digit inflation and the inflation figure in late 2011 is running at a double digit rate. The arithmetic average inflation for the last 30 years (1981-2010) is 7.54 percent.1 Therefore, it is reasonable to use a rate of 7 to 8 percent as the expected inflation rate. In the USA, 30-year to bond yield is the rate most commonly used for risk-free rate. Any investor can buy these bonds even though financial institutions and foreign governments are the largest buyers and holders of these financial instruments. Regardless, this medium is available to all, and therefore, it is a good proxy for risk-free rate. Bangladesh Bank issues 5-year and 10-year Treasury Bonds and these are usually held by scheduled banks. This medium has now been opened to the general public. Until we start seeing significant trading in T-Bonds in the open market, this may not be considered a liquid investment even though it is risk-free. From various publications of TradingEconomics, historically, the real risk-free rate in Bangladesh has been between 7 and 8.6 percent, which presumably is the difference between actual rates charged by banks on risk-free or very low risk loans (prime loans) minus the inflation rate. During periods of high inflation, this margin may get compressed somewhat, and may even be negative in instances. The real deposit rates in Bangladesh were negative in some of the years in the 1980s. In the advanced western economies, the real risk-free rate is thought to be between 3 and 4 percent. Since the risk-free rate is supposed to be the minimum rate individual gets on his/her return, the deposit rate may be used as the proxy. However, the historical real deposit rate has been for the period starting from 1982 till 2010 had been just about 1 percent.2 The years of high inflation certainly depressed the real deposit rates. It seems to be reasonable to assume that depositors in Bangladesh would have an expectation
1 Trading Economics 2 Mujery and Younus (2009)

Inflation and Risk-Free Rate of Return

The risk-free rate of return is the minimum return a firm requires for all risk-free capital project proposals and the inflation rate prevailing in the economy and the real risk-free return dictates what the nominal risk free rate of return is. In equation form: krf = IP + krr
* Mr. Sharif N. Ahkam, D.B.A , Associate Professor of Finance, North South University. ** Mr. Azizur Rahman, FCMA, Fellow, The Institute of Cost and Management Accountants of Bangladesh.

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Finance
present market conditions (in year 2011), 11 percent (7.5% inflation + 3.5% real risk-free return on deposits) appears to be a good rate to use as the nominal risk-free rate of return for a risk-free capital project. At the time of writing this article, banks were offering 11-12 percent return on short term fixed deposits. more complex in Bangladesh since payment of dividend by way of issuing bonus shares is quite common. In addition, some firms issue right shares which must be incorporated into the total benefits shareholders receive for owning common shares of the firm. When a firm issues right shares, it may be issued at a premium and we will need the issue price to figure out the intrinsic value of the issuance of right shares. In the advanced economies, there are long series of market data, well established continuous indices, and data on dividend yield. Bonus shares and right shares are rare. There are three market indices available in Bangladesh: (1) All share price index, (2) The DSE General (DGEN) index and (3) the DSE-20 Index. We cannot rely on the All Share Price Index as it introduces strong bias since it started with very few stocks, and gradually added more and more stocks as time went on. This might not have been a problem had there been many stocks trading in the market and a truly long history of price data. This Index was introduced in 1993, discontinued for a while and was reintroduced in 2005.4 The DGEN appears to be broad based and more reflective of the market. We do have the problem of an absent long history since it was introduced only in 2001. There is also the question about its continuity as stocks have been dropped from the index for failure to meet certain conditions. In addition, we do not have the data on dividend yield for the index. This leaves us with the DSE 20 Index to rely on even though it has a short history, consists of only 20 stocks (the consensus is an index should have at least 30 stocks) and probably have significant bias and not quite reflective of the complete market. However, this is the only Index we can use at this point that will include both capital gains data and the dividend data.5 Investors in the stock market accept significantly higher risk than what the bank accepts with an average risk loan. The banks typically have significant documentations about the loan, some due process analyses, and can set some restrictions regarding business conduct for granting the loan. A stock investor, on the other hand, gets very little more than a residual claim on the assets and profits of the company and cannot set any restrictions about business conduct. The stock investors in Bangladesh probably bear significantly higher risk than the investors in western economies. In Table 1, we show the DSE 20 Index returns over the last nine years.6 Table 1 indicates that shareholders, on the average over last nine years, have earned approximately 32.63 percent returns which is indicative of 21.63 percent premium over the risk-free deposit rate of 11 percent. This compares with 7-8.6 percent premium over the riskfree rate in the USA. However, there are several reasons that we should not use it as a benchmark. First, this is a very small sample, a sample of just nine years, which might have been a sample that had some very good years bunched in and not very likely to persist. We have to wait to collect future data to develop a more reliable statistic. Second, a sample of 20 companies is not considered a welldiversified portfolio. As stated before, a well-diversified portfolio should have at least 30 stocks.
4

Risk Premium for Long-Term Debt

It is likely that some questions will be raised about our suggestion about the risk premium. In a perfect market, interest rates are supposed to be frictionless, that is there would be no material difference between the borrowing rate and the lending rate. In western and developed economies, vibrant bond markets exist in which firms borrow at the prevailing market rate (the borrowing rate by the issuer) by issuing new bonds, which also happens to be the lending rate by the buyers of the bond. Bond market is practically non-existent in Bangladesh. At present, there are two outstanding Bonds being traded in the market, (a) a 20 year zero coupon bond issued by American Chemical Industries, and (b) a perpetual bond issued by IBBL. Some debentures issued by Beximco family of companies have now been retired or converted into common shares. The lack of a market for long-term bonds leads us to a different direction to estimate the premium required for average risk financing. Most firms usually rely on banks for intermediate term and long term financing. Lease financing is a fairly common way of financing equipments. Bangladesh bank data for the last 10 years indicate a spread of about 5.7 percent.3 Using this figure as the substitute for bond (debenture) premium, this may be added to the nominal riskfree rate to obtain the required return on potential bond financing. In the absence of a market generated figure for bond yield, this is the best tool to estimate the cost of long-term debt. Under the present market condition, the cost of long-term debt may be taken as the nominal risk-free deposit rate plus the expected spread, 11 percent plus 5.7 percent, giving us a figure of 16.7 percent.

Risk-premium for Investment in Equities

The WACC equation requires the cost of using equity capital, and one way we can determine that is using the formula from the Capital Asset Pricing Model (CAPM). This equation has the following form: ke = krf + (km-krf)betai where ke is the cost of equity, krf is the risk-free rate, (km-krf ) is the expected market risk-premium, and betai is the beta of the particular stock of the company, i. Risk premium for investment in equities is most often expressed as the excess return in the market over the risk-free rate. Sometimes, it is also expressed as the excess return in the stock market over bond yield. Because we do not have bond yield in Bangladesh, we will attempt to estimate the market risk premium as the excess return in the market over the risk-free rate required by investors in Bangladesh. Estimating the return on the equity market in Bangladesh at this stage is problematic. Equity return consists of two components: the dividend yield, and the capital gains. We can obtain capital gains in the market by a suitable market index. We do not have dividend yield number that we can readily use. The dividend yield issue is
3 Scheduled Banks Statistics and Bangladesh Bank Quarterly, various issues, Bangladesh Bank

DSE Monthly Report, (May 2010) Data supplied by DSE. Dividend yield data were derived from Dividend Archive provided by DSE.

5 The dividend yield figures were derived from the Dividend Archive supplied by DSE. 6

The Cost and Management, November-December, 2011

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Finance
Table 1 DSE 20 Returns (2002-2010)
Year 2002 2003 2004 2005 2006 2007 2008 2009 2010 Dividend Yield 10.96 8.47 5.45 9.06 7.09 4.21 4.24 5.49 4.68 Average Return Standard Deviation Capital Gain -1.94 16.43 75.76 -25.48 -12.57 76.76 -6.32 12.23 99.16 Total Return 9.02% 24.90% 81.21% -16.42% -5.49% 80.97% -2.08% 17.72% 103.84% 32.63% 44.26%

Table 2 indicates that firms resort to banks and financial institutions for about 30 percent of their financing needs for new investments. In general, just about 17 percent of firms carry long-term debt in their capital structure.7 The cost for utilizing long-term debt will be represented either by the lending rate or the premium over the risk free rate and the choice between the two should not result in any material discrepancy. It is the after-tax cost of debt that really matters.

After-tax Cost of Debt Capital

The equation for after-tax debt capital is normally given as follows: After-tax cost of debt = kd(1-t) Where kd is the lending rate prevailing in the country or risk-free rate plus a premium (suggested 5.7 percent, with overall before tax cost of debt currently at 16.7 percent). In developed countries, the applicable tax rate is generally uniform for all companies of the same size. Not so in Bangladesh. The applicable tax rate for banks and financial institutions is 42.5 percent, for mobile phone operators, it is 45 percent, for publicly traded companies paying 20 percent dividend, the tax rate is 27.5 percent, and for most other public companies and private limited companies, it is 37.5 percent.8

Given the discussion above, it seems inappropriate to use 32.63 percent as the required return for investment in an average risk stock. Given the inflation expectation and the rate of real interest rate, it is recommended that we use 30 percent as the required return on an average risk stock until we can validate a rate with a longer history and a broader index of the market. A 30 percent return on an average risk stock represents a 19 percent premium over the nominal rate for risk-free deposit rates. The choice of 30 percent is arbitrary and represents a downward adjustment to reflect the likelihood that this high rate will not persist.

Cost of Preferred Stock

In Bangladesh, accessing preferred stock capital is extremely rare. There are some instances where convertible preferred stocks had been issued. The cost of generic preferred stock with unlimited life, kpr, is computed by dividing the annual preferred stock dividend, Dpr, by the net proceeds from the sale of preferred stocks, as follows: kpr = Dpr/NP where NP is the net proceeds per share from selling preferred stock) Preferred stock dividends do not offer any tax advantage to the company and hence there is no tax adjustment required. While legally, preferred stock holders are owners of the company, from a financial management point view, issuance of preferred stock commits the company to a defined cash outflow similar to bonds and debentures with no tax deductibility and hence is an inferior form of procuring fixed payout form of capital.

The Cost of Components of Long-Term Capital

In order to find the weighted average cost of capital (WACC), we need to know the costs of the components of capital. There are three basic forms of long-term capital: (1) long-term debt, (2) preferred stock, and (3) equity capital. In developed economies, long-term debt is almost synonymous with long bonds, usually with maturities of 20 years or more at the time of issue. Bonds and debentures are almost nonexistent in Bangladesh. Companies often rely on financial institutions for long term debt, which rarely exceed maturities of 10 years. This source is used for financing capital assets and should be treated as debt capital. We must be careful to separate the long-term debt from short term debt which is used to finance the day to day operation. Table 2 below indicates the sources of finance for new investments for Bangladeshi firms. Table 2 Sources of Finance for Firms in Bangladesh Sources of Financing for New Investments Retained Earnings Banks and Financial institutions Trade Credit Equity Informal Sources All Others Percent 59.9 29.7 2.6 0.4 0.3 7.1

Cost of Common Stock Capital

A company can source equity capital in two ways, (1) by retaining profits which belong to the shareholders, and (2) by issuing new shares. Most companies do not pay out all of their profits to shareholders as dividend, they will keep at least a substantial portion of it to fund expansions. In Bangladesh, many companies issue bonus shares in lieu of dividends and sometimes they pay cash dividend and issue bonus shares at the same time. Issuing bonus shares does not involve cash payout. Money does not leave the firm, but a transaction is recorded in the books that transfer the money from retained earnings (or accumulated profits) account to paid up capital account. In the absence of tax rebate for dividends, the cost of retained earnings would be computed either using the Gordon Valuation model or the Capital Asset Pricing Model.
7 Preliminary estimate based on annual reports provided by DSE 8 Bhowmik and Bala (2011)

From a page of TradingEconomics. Their source: Investment Climate Surveys, The World Bank and Bangladesh Enterprise Institute, June 2003
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Finance
Cost of Retained Earnings Based on Stock Valuation Model
The first choice is the expected return by the common shareholders based on a rearranged Gordon Growth Model. For a normal stock that grows at a constant growth rate, we have the following valuation formula: P0 = D1/(ke-g) If we solve for ke, the expected return, the equation takes the following form and gives us a formula for a cost of equity capital: ke = (D1/P0) + g Estimating growth rate We need a growth rate to apply the above equation. There is no cut and dry definition or formula for growth rate that we can use in the growth model equation. We have several choices and we can choose the one that seems most reasonable. One way of determining the growth rate is simply to take the arithmetic or geometric average growth rate in dividends or stock price appreciations over the last several years. If we dont have a dependable history of growth in dividends, the GDP or GNP growth in the economy could be used as the conservative growth rate. The justification of using the GDP or GNP growth rate is that the firm should be growing at a minimum rate that matches the growth of the whole economy. If a company has a policy of paying out a roughly stable percent of its income as dividend, then the sustainable growth rate will be a good growth rate to use. The sustainable growth rate is computed as follows: Sustainable growth rate = g= Return on Equity (1-Payout ratio) If we apply the equation to a company that earns 25 percent on its equity capital and pays out 40 percent of its earnings, then, this company will have a sustainable growth rate of .25(1-.4) = .15 or 15 percent. Estimating Dividend Benefit The Gordon Growth model also needs as input a value for dividend and if we have a value for expected dividend, that would be great. Most often, we have to obtain or derive a value for current dividend and we will inflate it by the growth rate to get expected dividend for next year. The latest dividend, Do, should be the sum of cash dividend, per share benefit if bonus shares are issued, and per share benefit of right shares if issued. If right shares are issued in the latest year, that will also cause problem as it may significantly inflate the current dividend benefit and become non-representative as expected dividend. Under such circumstances, the right approach will be taking the average dividend benefits for last several years and inflate it by an appropriate growth rate estimate. circumstances. The stock investors in Bangladesh probably bear significantly higher risk than the investors in western economies. In the following Table, we show the DSE 20 Index returns over the last nine years. Table 3 below summarizes the risk-premium implied in Bangladesh. Table 3 Implied Risk Premium for Long-term Debt and Equity Investment Percent Inflation Expectation Real interest rate (deposit) Nominal risk-free deposit rate Premium for Average risk loan Nominal rate for average risk Long-term loan Return on Average stock Recommended required return for average risk stock Implied premium for stock investment 7.5 3.5 11.0 5.7 16.7 34 30 19

Estimating Cost of Retained Earnings in Bangladesh: A Modification That companies receive a rebate of 10 percent of income tax when they pay dividend of at least 20 percent of paid-up capital requires a modification in the cost of retained earnings equation. It affects the estimation of cost of equity capital (retained earnings and new equity). The rebate belongs to the shareholders and hence, whenever a dividend is announced (assuming a dividend paying company will always pay 20 percent of its income as dividend to take advantage of the substantial rebate), the shareholders will have a claim on the rebates. This changes the equation for cost of retained earnings to the following: ks = [D1(1+tr)]/P0] + g. In the above equation, tr is the rate of tax rebate per share. There is no direct way of incorporating the tax rebate in the CAPM equation. It is probably not necessary either, since market is likely to have adequately incorporated the information in the required return.

Estimating Cost of New Equity Capital

If a firm is issuing new equity capital through a stock issue, it incurs substantial cost associated with the issue. We can modify the Gordon Growth Model equation to factor the issuance cost as follows. ke = [D1/P0(1-f )] + g When it is necessary to incorporate the tax rebate the company is entitled to, we will modify the above equation to ke = [D1(1+tr)/P0(1-f )] + g In the above equations, f represents as the fractional cost of issuing new shares. If we have the actual Taka cost per share, we may modify the equation as follows: ke = [D1(1+tr)/Net proceeds per share] + g Normally no adjustment is made for issuing new debentures since the cost of issuing debt capital is negligible on a percent basis. The Weights for The WACC Equation
15

Cost of Retained Earnings Based on CAPM

The second choice we have in determining the cost of using retained earnings for growth capital is the Capital Asset Pricing Model. Recall that required return is given by the following equation: Ke = krf + km krf)Betai To apply this equation, we must have the data on market return, beta of the companys stock, and the risk free rate. The risk-free rate is supposed to consist of inflation expectation and a real rate of return. From earlier discussion, we can settle on 11 percent as the risk free rate and 30 percent for market return under the current
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Finance
Now, we will briefly discuss the weights of the various types of capital in the capital structure. In the absence of better information, we may use the book values of the companys capital structure, which, unfortunately, may not reflect the real capital structure. Market value weights may also be used and is more attractive than book value weights since it better reflects current market conditions. However, it is also subject to major variations due to market fluctuations. The firm should have a long-term target capital structure in mind and we will assume that most firms have a target capital structure. It is interesting to note that firms in Bangladesh are hardly using any debt in their capital structure. Use of preferred stock is so rare that for all practical purpose, we can leave it out of the equation. The firms which are using long term debt, the debt is basically from banks and financial institutions. Having debt in the capital structure provides significant tax advantages and the firms are not taking advantage of that. Having no debt in the capital structure results in a discount rate that is equal to the required return on equities. Anyway, we can specify the following equations for companies in Bangladesh. 1. For a firm with no debt, paying no dividend: WACC = Cost of retained earnings = ke =D1/Po + g. Or required return on stock as indicated by CAPM, ke = krf + (km-krf)Beta It may be worth noting that if this firm is not paying dividend, we cannot directly apply the Gordon Growth model and we may be better off using the CAPM model. 2. For a firm with no debt, paying 20 percent dividend, allowing tax rebate claim WACC = Adjusted cost of retained earnings = ke = D1(1+tr)/Po + g. Or required return on stock as indicated by CAPM, ke = krf + (km-krf)Beta 3. For a firm with debt, paying no dividend: WACC = Wd(kd-t)+We(ke) References
1. Bhowmik, Ranjan Kumar, and Bala, Swapan Kumar, Income Tax in National Budget 2011-12 and the Salient Features of the Income Tax Portion of the Finance Act 2011, The Cost and Management, May June (2011) Mujery, Mustafa K., Younus, Sayera, An Analysis of Interest Rate Spread in the Banking Sector in Bangladesh, The Bangladesh Development Studies, Vol XXXII, December (2009), No. 4 Trading Economics, various web pages. Bangladesh Bank Quarterly, various issues. DSE Monthly Report, May 2010, Vol 25, No. 5 Data on Dividend and Annual Reports supplied by the Dhaka Stock Exchange.

Tax rate, t = the appropriate tax rate for the firm. We may use 16.7 percent as before tax cost of debt and use the CAPM model to derive ke. 4. 5. For a firm with debt, paying dividends: WACC = Wd(kd-t)+We(Adjusted ke) Tax rate, t = appropriate tax rate for the firm, Adjusted ks = D1(1+tr)/Po + g. Or ke = krf + (km-krf)betai

Conclusion
That many firms do not have any debt in the capital structure implies that these companies have a very high discount rate, in the neighborhood of 30 percent as indicated by the current market conditions. Funding capital projects with this type of required return will force the firms to fund riskier projects and many of the funded projects may not generate that type of returns. Hence, accepting and funding capital projects may actually be value losing propositions for many of these firms.

2.

3. 4. 5. 6.

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The Cost and Management, November-December, 2011

Corporate Governance Compliance with Corporate Governance Reporting by Listed Companies in Bangladesh
Prof. Md Salim Uddin, MBA, FCA, FCMA* Lutfun Nahar Begum**
Abstract : The global economic crisis that erupted in 2008, followed by a series of corporate scandals in 2001 and Asian financial crisis of 1997 has brought corporate governance practices back under spotlight. In February, 2006, Securities and Exchange Commission (SEC) imposed some conditions for the compliance by the companies listed with any stock exchange in Bangladesh in order to enhance corporate governance in the interest of investors and the capital market. In such a context, the present study investigated the status of compliance with corporate governance guidelines as prescribed by the SEC by the selected listed companies in Bangladesh and also examines the level of compliance and reasons for noncompliance. The results of the study indicate that 100 sample companies (93 percent) out of 107 total sample companies have complied with the SECs notification in corporate governance reporting in varying degree and the average compliance index is 85 percent ranging from minimum 54 percent to 100 percent. The study also revealed that 82 percent or 82 sample companies out of 100 didnt comply in full with all the elements of SEC corporate governance guideline. This findings indicate the poor state of corporate governance in Bangladesh and required most effective and legally enforceable complete code of corporate governance instead of comply or explain based SECs notification. The study in this context also focused on some important factors of sound corporate governance in Bangladesh. Keywords: Corporate governance, corporate governance dimension, listed companies, compliance, global economic crisis and corporate scandals.

Introduction
Corporate Governance is a topic of great interest in todays financial world. This has been the case since the collapse of a number of large U.S. firms such as Enron, WorldCom and Satyam, the fourth largest IT Company in India. In 2002, the US federal government passed the Sarbanes-Oxley Act, intending to restore public confidence in corporate governance. Again the global economic crisis that erupted in 2008 raises serious questions about the efficacy of contemporary corporate governance. Globally, corporate governance has become a key focus in the international business agendas of not just corporations but also of governments and supranational authorities. Indeed, the World Bank sees the corporate governance agenda being anchored to development agenda at a number of critical points: international financial stability; broadening access to capital; promoting efficiency; fighting corruption; and fastening the savings that will ultimately broaden welfare provision. The spectacular corporate collapses and global financial crisis were obviously key motivators for the heightened interest in corporate governance. Good corporate governance contributes to sustainable economic development by enhancing the performance of companies and increasing their access to outside capital. In emerging markets good corporate governance serves a number of public policy objectives. It reduces vulnerability of the financial crises, reinforcement property rights; reduces transaction cost and cost of capital and leads to capital market development. Corporate governance concerns the relationship among the management, board of directors, controlling shareholders, minority shareholders and other stakeholders. A corporate governance system is comprised of a wide range of
* Mr. Md Salim Uddin, FCMA, FCA, MBA, Professor, Department of Accounting & Information Systems, University of Chittagong, Chittagong. ** Ms. Lutfun Nahar Begum, Associate Professor, Department of Sociology, University of Chittagong, Chittagong.

practices and institutions, from accounting standards and laws concerning financial disclosure, to executive compensation, to size and composition of corporate boards. A corporate governance system defines who owns the firm, and dictates the rules by which economic returns are distributed among shareholders, employees, managers, and other stakeholders. As such, a county's corporate governance regime has deep implications for firm organisation, employment systems, trading relationships, and capital markets. Interest in corporate governance is growing at an exponential rate. Improvements in corporate governance practice are being orchestrated at a global level. International bodies such as the Organization for Economic Development (OECD) are developing internationally acceptable standards of corporate governance. In the UK, companies are continuing to strengthen their generally sound corporate governance systems, focusing on shareholder and stakeholder relations and accountability, improvements in the performance of boards of directors, auditors and the accounting function, and paying attention to the ways in which their companies are controlled and run. Similarly, institutional investors, accountants, auditors and the general public are increasingly aware of a continuing need to promote corporate governance. In Bangladesh, the publication of the SEC Corporate Governance Guideline 2006 for publicly listed companies has made it an important area of empirical research of corporate sector.

Corporate Governance Dimensions

Corporate governance is a multi-dimensional construct that consists of many systems and processes that elevate the monitoring and control functions in the firm. Prior literature presents several key dimensions to corporate governance such as ownership and board structures and financial disclosure (OSullivan, Percy, and Stewart 2008; Ashbaugh-Skaife et al. 2006; Standard & Poor 2002b, 2002a). The OECD (1999) defines corporate governance as a system by which
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Corporate Governance
business corporations are directed and controlled . Liandu (2002) defines it as the way the management of a firm is influenced by many stakeholders, including owners/shareholders, creditors, managers, employees, suppliers, customers, local residents and the government . Corporate governance can be used as a key factor in improving economic efficiency and in building investor confidence. Further to this corporate governance will give incentives to the owners and management to adopt objectives that are in the T&D best interests of the firm (S&P 2002b) (OECD, 2004). In recent years some very high Board and profile corporate failures as a Management result of global financial crisis Structure and in 2008 that involved fraud and Process questionable business practices have damaged the reputation of business managers. This has led to greater scrutiny of corporate governance and for the need for governments to tighten the regulations on corporate Financial governance further. Therefore Transparency & one of the objectives of Information corporate governance it is a Disclosure way of mitigating potential conflicts between the principal and agent (Ashbaugh et al., 2004). The principal being the Ownership party that provides the finance Structure and whereas the agent represented Investor Rights by the management whose task is to manage in an efficient manner so that maximum returns are provided for the principal. According to Jensen and Meckling (1976) these agency conflicts may result in agency costs. Agency costs include monitoring expenditures by the principal however may be due to losses due to the conflicts in interests between the owners and the managers. The agency costs may be reflected in a decrease in share price. Hence to increase firm value, one must reduce agency costs. Disclosure and transparency are also attributes to effective corporate governance practice. The OECD (1999) asserts that a corporate government framework should ensure that timely and accurate disclosure is made on all material matters regarding the firm including the financial situation, performance, ownership and the governance of the firm. Further to this Karamanou and Vafeas (2005) assert that sound financial disclosure (that is an objective of corporate governance) can bridge the information asymmetry gap between the managers and shareholders and can minimise agency problems. They also assert that poor financial disclosure that misleads investors will have an adverse effect on firm value. They found that effective board and audit committee structures might help the quality of disclosure and that will have a positive impact on firm value. Another objective of corporate governance is investor protection. According to ICAEW (2010) investor protection can be provided through an efficient legal and regulatory framework.
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OSullivan, Percy, and Stewart 2008; Standard & Poor 2002b, 2002a in their research studies focuses on three corporate governance dimensions, which are management oversight, financial quality and equity control. Figure 2.1 summaries the corporate governance dimension in this regard. Figure 2.1: Corporate Governance Constructs

O'Sullivan

Core Dimension

Board Autonomy

Management Oversight

Presence and Quality of Board

Audit Quality

Financial Quality

Independent Ownership

Equity Control

Standard and Poor (S&P) developed a corporate governance transparency and disclosure (T&D) score in 2002 (Standard & Poor 2002b). T&D is composed of board and management structure and process, financial transparency and information disclosure, ownership structure and investor rights (Standard & Poor 2002b). OSullivan et al. (2008) classify corporate governance attributes into board autonomy, presence and quality of the board, audit quality and independent ownership. Again the construct is represented by management oversight, financial quality and equity control dimensions. Management oversight maps into the classification developed by OSullivan et al. (2008) which consists of board autonomy and presence and quality of the board dimensions. It also relates to the board and management structure and process dimension used by T&D. Financial quality is associated with audit quality from OSullivan et al. (2008) and financial transparency and information disclosure from T&D. Finally, equity control is linked to independent ownership used by OSullivan et al. (2008) and the ownership structure and investor rights dimension used in T&D. The following figure 2.2 relates the three corporate governance dimensions: management oversight, financial quality and equity control.

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Corporate Governance
Figure 2.2: Corporate Governance Dimensions and Elements thereby performing a monitoring role which enhances the financial quality of the audited client (Chow 1. Independence 1982). Larger audit companies have 2. Duality greater expertise and resources which 3. Board Size enable them to be more effective and 4. Board Meetings detailed in investigating their clients 5. Nomination Committees financial disclosures (Kent and Stewart 6. Remuneration Committees 2008). The financial quality dimension of corporate governance, as shown in Figure 2.2, is represented by the 1. Audit Committee Charter independence of the audit committee, 2. Audit Committee the financial expertise of audit Independence committee members, the audit 3. Financial Expertise on committee meetings, the size of the Audit Committee audit committee, the existence of an 4. Audit Committee Size audit committee charter and the 5. Audit Committee Meetings identity of the external auditor (Francis 6. Identity of external auditor and Krishnan 1999; Warrick 1999; McMullen and Raghunandan 1996; Dechow et al. 1996; DeZoort 1998; Cohen, Krishnamoorthy, and Wright 2002; Kalbers and Fogarty 1993; Kim, 1. Blockholders Liu, and Ghon Rhee 2003; Pittman and 2. Inside Ownership Fortin 2004). The equity control dimension of corporate governance is a control mechanism which, unlike other governance practices, is focused on ownership concentration rather than on board dynamics. Research by Ang, Cole, and Wuh Lin (2000) investigate the relationship between the ownership structure and the agency costs for small businesses and show that management ownership reduces agency costs. Singh and Davidson (2003) replicate the study by Ang et al. (2000) on large public companies and arrive at similar results, which show an inverse relationship between insider ownership and agency costs. Results reported by Davidson et al. (2006) support previous findings that relate agency costs to ownership structure. They show that companies with higher levels of CEO ownership have lower agency costs. Another form of governance control mechanism is via family and founder ownership structure. Family firms rely on the concentration of ownership to achieve the same objectives set out by mandated corporate governance practices. Research by Anderson and Reeb (2003) and Villalonga and Amit (2006) find that familydominated firms outperform non-family firms.

Management Oversight Board Structure & Processes

Corporate Governance

Financial Quality Audit Process

Equity Control Ownership Concentration

The structure and processes of the board, as depicted in Figure 2.2, are typically represented by the independence of the board, the separation of the role of chair and CEO, board size, frequency of board meetings, the existence of nomination and remuneration committees (Kent and Stewart 2008; Anderson et al. 2004; Dechow, Sloan, and Sweeney 1996; Beasley 2000; Daily and Dalton 1994; Yatim, Kent, and Clarkson 2006; Vafeas 1999; Main and Johnston 1993; Conyon and Mallin 1997; Chiange 2005). The financial quality dimension of corporate governance is determined by the quality of the audit process. The audit process centres primarily on the effectiveness of the audit committee as well as on the identity of the external auditor. An audit committee provides specialized attention to issues such as the companys financial reporting, internal control systems, risk management, and appointment of external auditors. The main function of an audit committee is to review financial statements and the internal control system (Klein 1998; Azim and Shailer 2006).The committee facilitates communication between management, internal auditors, and external auditors and thus makes the internal audit process more reliable (Zain, Subramaniam, and Goodwin 2004). The audit committee protects shareholders interests by ensuring the companys compliance with disclosure regulations (Davidson, Goodwin-Stewart, and Kent 2005; Kent and Stewart 2008). The existence and effectiveness of an audit committee plays a vital role in alleviating the agency problem through its role in reducing information asymmetry (Klein 1998). An audit committees effectiveness is measured by its independence, accounting and finance expertise of its members, the number of times it meets per year and its size (Kalbers and Fogarty 1993; Yatim et al. 2006; Azim and Shailer 2006; Zain et al. 2004; Goodwin-Stewart and Kent 2006; Kent and Stewart 2008; Marsh and Powell 1989). Another important aspect of financial quality centres on the external auditor. Auditors assess the truth and fairness of their clients financial information,
The Cost and Management, November-December, 2011

Objectives of the Study

The main purpose of the study is to examine the status of compliance with corporate governance reporting conditions imposed by the SECs notification dated 20th February, 2006 by the listed companies in Bangladesh. In order to achieve main objective, the specific objectives of the study are set in the following manner: (i) To examine the compliance with SEC notification on corporate governance reporting by listed companies in Bangladesh;

(ii) To examine the status of compliance and non compliance with the code of corporate governance by the listed companies individually and sector wise; (iii) To assess the extent of compliance with corporate governance reporting by the sample enterprises.
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Corporate Governance
(iv) To exam whether the listed companies in Bangladesh are complying with all the individual items/ conditions of corporate governance imposed by SEC or not; and (v) To find out the reasons/ explanations for non-compliance with the conditions of corporate governance prescribed by SEC. requirement of chief financial officer, head of internal audit and company secretary, composition of audit committee, and restricted areas of services for external/statutory auditors are the main areas of the SECs notification. Notification also contains all the prescribed conditions in a suitable format for reporting by the listed securities. In this context, an attempt has been made to examine the compliance of the conditions set in the notification by the listed companies in Bangladesh. The following Table 01 shows the picture in this regard. Table:01 Corporate Governance Reporting as per SECs Notification by the sample Enterprise-Sector Wise
Sector Total Sample Complied Non Units with SECs complied Notification with SECs Notification 15 (100) 15 (100) 21 (100) 12 (100) 04 (100) 04 (100) 06 (100) 03 (100) 03 (100) 05 (100) 07 (100) 12 (100) 107 (100) 14 (93) 14 (93) 21 (100) 11 (92) 04 (100) 04 (100) 05 (83) 03 (100) 03 (100) 05 (100) 07 (100) 09 (75) 100 (93) 01 (07) 01 (07) 00 (0) 01 (08) 00 (0) 00 (0) 01 (17) 00 (0) 00 (0) 00 (0) 0 (00) 03 (25) 07 (07)

Methodology
The study has been based on secondary data and information published in the annual reports of sample units and in the existing literatures. The annual report is a one of the major medium used by company to communicate information to outsiders, the interested parties. In such a context, the annual reports for the year 2009 of the listed companies in Bangladesh have been selected as sample for measuring the corporate governance reporting. The Securities and Exchange Commissions notification issued on 20th February 2006, the code of corporate governance which immediately imposed based on comply or explain has been taken as guidelines. Based on SECs notification all 37 disclosure items have been selected to measure the corporate governance disclosure index (Appendix3). For the purpose of measuring compliance with corporate governance reporting, 107 (one hundred seven) out of total companies listed with Dhaka Stock Exchange (DSE) and Chittagong Stock Exchange (CSE) have been taken as sample. The details of sample enterprise and their sectoral position have been enumerated in appendix-1 and Table 01 respectively. All the 107 sample annual reports have been gone through one by one and found that 7(seven) sample enterprises did not comply or report the corporate governance exactly as imposed by Securities and Exchange Commission. Hence, the 7(seven) sample enterprises have been excluded from the measurement of disclosure index. Author has calculated an index for each of the rest 100 (one hundred) sample enterprises in order to measure the level of corporate governance compliance with SEC notification. A dichotomous procedure is used when scoring the individual sample company, which means that the sample received 1(one) for each compliance item on the compliance list (Appendix-3) and 0 (zero) for each item that was not complied or explained. The total score for each company was then divided with the relevant number of items on the compliance list for each company. In this way, the study report individual corporate governance compliance score for each of 100 sample enterprises. All the score have been again tabulated as per plan of the study in order to analyse the findings of the study. In addition, existing literature published in the papers, reports, books, and different research studies and the publication of different development agencies have also been consulted in order to gain indepth idea on the subject in general and to draw the conceptual framework of corporate governance in particular.

A. Engineering B. Food & Allied Products C. Textile & Jute D. Pharmaceuticals & Chemicals E. Paper & Printing Industries F. Service and Real Estate G. Cement Industries H. IT Sector I. Tannery Industries J. Ceramic Industries K. Fuel & Power L. Miscellaneous Total

(Source: Appendix 01.Figures in parentheses indicate percentage)

Analysis and Results

1. Compliance with SECs Notification on Corporate Governance Reporting The Securities and Exchange Commission (SEC), the oversight body and regulator of stock exchanges and listed securities in Bangladesh, issued a notification on 20th February 2006 imposing some conditions to be followed by the companies listed with any stock exchange in Bangladesh on comply or explain basis in order to enhance corporate governance in the interest of investors and the capital market. Boards size, independent directors, different individuals for the position of chairman of the board and chief executive, subject matters of the directors repot to shareholders,
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From the Table 01 it is revealed that total 107 sample companies out of total listed non-financial companies in Bangladesh have been investigated to examine their compliance with SECs notification on corporate governance. Out of 107 sample companies under study, 100 companies complied with the notification indicating 93 percent and rest 7 sample units such as Kay & Que (Bangladesh) Ltd., Beach Hatchery Ltd., Bangladesh Chemical Industries Ltd., Niloy Cement Industries Ltd., Bangladesh Luggage Industries Ltd., Bangladesh Zipper Industries Ltd., and Bangla Process Industries Ltd did not comply with SEC notification. Table 01 also provides the status of compliance and non- compliance with SECs notification of the sample companies under study categorized by industry type. The findings indicate that the all sample companies under Textile & Jute, Paper & Printing Industries, Service and Real Estate, IT Sector, Tannery Industries, Ceramic Industries, and Fuel & Power complied with SEC notification followed by Engineering, and Food & Allied Products (93 percent), Pharmaceuticals & Chemicals (92 percent), Cement Industries (83 percent) and Miscellaneous (75 percent). Among the 12 sectors, 7 sectors complied with the SECs notification of corporate governance. ( To be Continued ......... )

The Cost and Management, November-December, 2011

Management Coal Mine: A Public Management Case Study

Kamrul Hoque Maruf ACMA*
Abstract : This paper will review a public management case in a developing country. The case reviewed here is a coal mine project which was protested and opposed by a section of local people, the civil society and other stakeholders. The paper will describe the key controversial issues and then try to examine the public management failure. The main focus of the writer is the use of partnership mechanism and third way social governance to get rid of such failure. The argument reflects the ideas of civil society, community involvement, consultation and localism. The paper concludes with the recommendation of involving citizens and civil society with more consultation and engagement to achieve a better public management. Keywords: Coal Mine, Social Governance, Public Management.

Introduction
The general trend in the policy development process in developing countries is that citizens do not get the opportunity to deliberate over the most appropriate options and to be involved actively in policy implementation. Policymakers sometimes approach direct consultation with communities in a defensive way so that it is an once-only requirement(Curtain, 2006). However, Citizen Participation is a basic building block for contemporary democratic society and sustainable communities. It is argued that citizen participation can help to build strong democracy through the development of human and social capital. Development of this capital lays a platform for collaborative action for the common good. Implementation of a more participatory democracy enables peoples direct involvement in planning, decision making, resource allocation and other process that affect their lives(Cuthill and fien, 2005). In this paper I will focus on a public management failure in a developing country, Bangladesh. The case is related to development of a coal mine in Phulbari, an area in the underdeveloped northern part of the country. Bangladesh has acute problem in energy sector which is harming the economic growth of the country. To improve energy supply and to foster economic development of northern region of the country energy and mineral resources division of the government of Bangladesh developed a coal mine project under a joint venture with a foreign company. But the local people and civil society opposed the idea of an open pit coal mine project. They claimed that the project would displace the people residing in the mine area and the area will have environmental impacts. The mine area will be completely dewatered and this may hasten the desertification process in Barind Tract. On the other hand supporters of the mining project argue that the project will provide alternative source of energy and will also have local and regional benefits. The extracted coal can significantly expand the electricity generation. However, a civil society organization, the national committee to protect oil, gas, and mineral resources protested against the project and there were demonstration by the local people against the project. As a result Government was forced to bring to a halt of the activities of the project. A critical examination of the project activities will focus whether there was a failure by the public managers to involve the local people, civil society organizations and other stakeholders in the project development process. The centre point of argument of this paper is that any project involving large magnitude of stakeholders can work better with a mechanism of partnership between the stakeholders.
* Mr. Kamrul Hoque Maruf, ACMA, Deputy Commissioner of Taxes, Second Secretary (Taxes Monitoring), National Board of Revenue, Dhaka. The views expressed by the writer was of his own.

Partnership
The emergence of partnership as a solution to a wide range of complex public policy problem reflects an emphasis on localised responsibility for policy implementation. Partnership has been concerned in terms of interest representation, its impact on the patterns and processes of governance, the commitment of key actors(Geddes, 2001). Partnership emerged as a means to induce other actors to share responsibility and to find solution to urban problems(Geddes, 2001). Lowndes and Skelcher(1998, p. 353) have argued that Partnership, as an organizational structure, is analytically distinct from network as a mode of governance the means by which social co-ordination is achieved. The growth of partnerships reflects the complexity and intransigence of the wicked issues facing government issues that can only be tackled by bringing together the resources of a range of different providers and interest groups(Lowndes and Skelcher, 1998). Partnerships are considered as more flexible form of governance, capable of resolving some of the legitimation problems faced by the state to find ways to solve complex problems of sharing risk and building trust between the public, private, voluntary and community sectors(Geddes, 2000). Partnership with voluntary and community sectors can create many opportunities. Most importantly it gives them a key role in the development of local communities. It also provides them opportunity to represent and give voice to the views of local community groups(Osborne, 1998). However, sheer diversity of the sector can make partnerships with voluntary and community sector difficult for government. There may be circumstances where it may be very difficult for a partnership to find out the right group to talk and to engage with. In some cases it may even be difficult to find whether there is a community group in the field to work with. It may also be difficult to identify the relevant group in the rural areas(Osborne, 1998). While in urban the sheer density of voluntary and community activists can make it hard to find out the key actors.

The Case of Phulbari Coal Mine:

Phulbari Coal Mine project is 350 kilometers from Dhaka, capital of Bangladesh. Phulbari is a small town of 30,000 people and it is one of the poorest region in the country. The mine footprint covers almost 5,192 hectares. It was planned to be developed as an open-cast mine which was expected to deliver up to 15 million tonnes of high quality coal per year for 30 plus years. Out of this 15 million, 8 million tonnes would be exported to international market, 4 million tonnes would be exported to India and the rest 3 million tonnes were to be used for the proposed 500 MW power plant and sold for domestic use(AEC, 2006). Most of the unexploited coal reserves in Bangladesh lie in the northwest part of the country. It contains an estimated two billion
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Management
tonnes of coal beneath the ground. Exploration of this coal is critical for the countrys economic growth. The overall energy consumption is low in Bangladesh and this is holding back economic development of the country. The estimated reserve of Phulbari coal basin is 572 million tonnes. This is considered to be the largest coal reserve in Bangladesh. It is expected to provide a vital source of sustainable energy. Thus it will transform the northwest regions economy to an industrial economy and accelerate the pace of industrial development. Economic analysis shows that the project is expected to add 0.7 to 1.0 percent to the annual Gross Domestic Product(AEC, 2006). a depth of 900 meters and therefore the possibilities of extraction and use is very thin. The biggest quantum of coal is deposited here, approximately 1050 million tonnes. The remaining mines have a reserve of 1005 million tonnes(Samad, 2008). The coal mine developed in Barapukuria has created many problems. Enough coal cannot be extracted from it. At many places in the mine, the ground has been giving in. On the contrary open mine policy in Phulbari could not be effective because of differences of opinion among the government, Asia Energy and the local people. At the root lies the question of relocating and resettling the inhabitants of the area(Samad, 2008).

Objective and Scope:

The project is expected to provide a new source of energy. This will boost regional and national economies. It will also establish a new import/export corridor of national strategic importance. Local consumption of coal has the potential to significantly expand much needed electrical power through mine mouth power plants to be implemented in 500 MW stages up to 2,000MW. The project would also provide an opportunity for export which could stimulate both domestic and foreign investment. Such investment could increase government income through royalties and taxation. It has also the potential to add significant indirect income through the economic multiplier effect and thus lead to poverty alleviation and sustainable development (ADB, 2005).

Human Rights Violations:

There were major human rights violations which involved killing, torture and threat. In August 2006, people conducted a protest rally against the Phulbari Coal Project. There were more than 20,000 people. Paramilitary force, Bangladesh Rifles, opened fire on the protesters and 5 people were killed and 100 were injured. Besides, joint forces beat up one of the leaders of the anti-coal-project movement and framed charge against him and he was later arrested(JACSES, 2007).

Inadequate Consultation and Information Disclosures:

Consultative process offers policy makers a way to structure debate, and to develop a solution. It reflects the realities of the problem and the competing interests of those involved. However Bridgman and Davis(1998) have argued that consultation carries costs. Expenses and delays are inherent in managing large consultative exercise. Consultation may have questions of legitimacy when government itself decides who can claim a voice in consultation. In such circumstance government itself undermine the benefits of consultation(Bridgman and Davis, 1998) by making consultation with those people who support their programmes. In the Phulbari Coal mine project, there are allegations by the local people that Asia Energy Corporation did not conduct adequate public consultation and information dissemination. Local people and elected representative of local bodies claimed that during public consultations on the coal project, Asia Energy Corporatio mentioned about the project benefits, and they did not explain about the negative impacts like environmental harms of the project and mitigation measures against the harms. The company did not respond to the requests of the Commissioners and Chairman of the Phulbare Municipality and indigenous leaders to provide documents like Environmental Impact Assessment, draft Resettlement Plan, draft Indigenous Peoples Development Plan etc(JACSES, 2007). This inadequate consultation and information disclosure generated anger among the local people and ultimately forced them to arrange mass demonstration.

Environmental and Social Issues:

As part of the Definitive Feasibility Study (DFS), SMEC International Pty Ltd was engaged to conduct an Environmental Impact Assessment (EIA) and a Social Impact Assessment (SIA) for the project. The EIA and SIA report was submitted to the government. The Initial Environmental Examination (IEE) provided a preliminary assessment of the environmental, social and economic impacts of the project. It also outlines the measures to mitigate impacts that may occur(ADB, 2005). According to Phulbari Municipality Chairman the coalmine project will dismantle 20 thousand public and private structures. However, Asia Energy officials claimed that the number of structures to be demolished would not be more than 4 thousand. The district forest department said that more than 4 lakh trees will have to be axed once the project is implemented. The mining project will also cause a decline in the underground water level in Phulbari and adjacent areas. The project will require displacement of population residing in the mine area. The mine footprint is mainly on agricultural and settled land. There are an estimated 40,000 people residing at the eastern end of Phulbari and they will have to be relocated. While Phulbari will be the most affected area, all the Upazillas (administrative units) will be affected by the relocation(Asia EnergyAEC, 2006). People opposing the coal mine project have claimed that 40 square mile land in four upazilas in the district will be damaged in the process and it will hamper food security in the district.

Economic Impacts:
The project, if implemented, will provide alternative source of energy and it will also have local, regional and national benefits. At the national level, government will get royalties and taxes. Besides, Railway and the Port Authority will get charges for coal transportation(Asia EnergyAEC, 2006). Above all Bangladesh needs to make use of its coal resource to generate electricity. There are five coal fields in the country. These are: Jamalganj in Joypurhat district, Barapukuria in Dinajpur district, Dighirpar and Phulbari in Dinajpur district and Khalashpir in Rangpur district. The coal in Jamalganj is in
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Right to Information:
There is consensus among the intellectuals and experts that people have the right to information about any international deal or policy in energy sector. However record shows that there were attempts to keep international deals out of the purviews of the right to information act. The excuse behind it was that peoples access to information on such deals would affect foreign direct investment. By enacting such act the state has failed to perform its duty to make information public. Rather in some cases the state has tried to hide information(Daily-star, 2007).
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Management
Like other foreign investment dealings the government has failed to disseminate information about the energy and mineral sectors to the public, particularly to the people of Phulbari. This deliberate attempt to hide information has created anger among the general public, the civil society and other stakeholders. stakeholders have been affected and how they might take the projects outcome. Involving the people of the local community may reflect the views of the stakeholders effectively. In the Phulbari coal mine case if there were provision for involvement of community people from Phulbari and other adjacent areas, the outcome could be different than it has achieved by involving only the public managers. Many people may ask the question why involve the community. The obvious answer would be that the community has a right to get involved. Different people and organisations take different views of the extent of involvement of individuals and organisations. However, it is important to recognise that involving the community has a range of benefits. It facilitates better decision making and enhanced cost effectiveness. Involving the community can therefore be a means to ensure that programmes and initiatives are more effective in achieving their objectives(DOE, 1995). However, a report for the Australian Public Service Commission has argued that stakeholder involvement in policy development and implementation may not be appropriate sometimes. Lacks of time, security, lack of funds, conflicts of interest, privacy of individuals are cited as the reasons for not engaging the citizens(Management Advisory Commettee 2004 as cited in Curtain, 2006).

Differences of Opinion:
After the mass agitation program by the people in Phulbari, Government formed an advisory committee to make recommendation regarding coal mine project. Committee members were in favour of allowing a pilot project on open pit mining covering eight square kilometres area at Barapukuria coal field. But those against the open-pit mining argue that pilot project would be wastage. They said that openpit mining would not be successful in Bangladesh considering the geological condition of the country. They also said such a pilot-project would bring natural disaster(NewAge, 2007a). However, the advisory committee in its submission reported that it would not be possible to export coal from Bangladesh in order to ensure energy security of the country for the next 50 years. They have also recommended that preference should be given to government sector agencies in developing coal fields. However, in case of emergency, the government will be allowed to develop coal field through joint ventures with private and public entities of local and foreign countries. The committee members were against the policy of giving any coal field to foreign company alone(NewAge, 2007b). However, GCM Resources plc, the parent company of Asia Energy Corporation (Bangladesh) Ltd have different stand regarding the project. According to the company, environmental and social Impact Assessment and other action plans have been done through independent evaluation, complying with the performance standards of International Finance Corporation, coal mining guidelines of the World Bank and safeguard policies of Asian Development Bank. The results of the project have been transparent and information is accessible to the government, local community stakeholder and the general public. GCM also claims that Asia energy seeks to work with the development agencies to contribute to the regional development of the northwest and western transport corridor. It will provide industrial materials like rock aggregate, silica, sand and Kaolin which will have national economic impacts. Local communities in the mine area and along the transport corridor will be better off by the project. GCM have argued that the project will alleviate poverty through job creation, training and development opportunities for local communities, establishing local cottage industries and improve standard of living(GCM, 2008). Despite the clarification of GCM Resources plc about positive impacts of the coal mining project, government of Bangladesh has been delaying any decision regarding the project. Mineral Resources Bureau has cleared its position by stating that no decision regarding the project will be taken before the coal policy is finalized. Considering the government stand on the coal project and mass protest by the civil society Asian Development Bank has moved back from its decision to finance the project. Recently the Asian Development Bank has notified that it will no longer ask for approval of the Phulbari Coal Project. The Bank has been criticized by different quarters for approving a US$ 100 million loan and US $200 million political risk guarantee for the project. (ADB, 2008)

Social Governance:
Recent experiences of social governance have focused on citizens engagements initiatives. The aim of this initiative is to work with and beyond existing government to deliver improved local community outcomes. It is argued that reconfiguring the relationship between the state, market and civil society is necessary. The third way social governance imply that big-state of large public bureaucracies and publicly owned enterprises are redundant in the new environment of competition, privatization and global capitalism and the implications of this lead to the acceptance of community centred governance arrangement(Reddel, 2004). Peter Botsman and Mark Latham(2001) has argued about an enhanced role for civil society and emphasized the reciprocal relationship between social partners and the state. They have advised to give special role in defining, delivering and managing appropriate forms of social actions to those who have special needs. They are in favour of transferring power from the bureaucrats to the decision-making groups in the community.

Case Analysis:
Over the last few decades the legitimacy of public services has proven to be ineffective, unnecessary, and even harmful and this has been the case all over the world. Clerics of public management have stressed the need for new techniques of legitimation such as focus groups, citizens juries, boards of directors chosen to represent different sectors and interests. Also needed is the partnership of all sorts between the public services and those wanting to make profits, between public, profitmaking and not-for-profit organizations, between professionals and lay persons, between political institutions and voluntary organizations, and much more. These new hybrid mechanisms are more flexible and closer to local needs than the bureaucratized organs of the state. It ensures accountability, reconciles competing interests, and transcends the harmful split between state and society. This idea is often termed by academic and researchers as the recreation of civil society which is a blend of not-for-profit organization, nongovernmental agencies, residents associations, and other enterprises whose purpose is social rather than for the pursuit of profit. They are also termed as the third
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Community Involvement:
Under the existing bureaucratic structure, opinions of local government officials are given due consideration. But the opinions of these civil servants do not take into consideration how the local people and other
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Management
sector. In the politics of third way third sector activities are accorded a key role in the reform of welfare, health care, education, and in civic revival. On the other hand, third way is a practical as well as an ethical program. Hargreaves has identified civil society as a veritable Bucolic zone of liberty, where citizens act together freely to express their freedom, to solve problems, to provide services to each other. It is desirable for the citizens to be able to express their instincts to help others rather than contracting out all of these actions to professional or state services(Rose, 2000). Phulbari coal mine project gives us the lesson that the age old public service has again proved to be ineffective and harmful. The public service, here represented by the district administration, has failed to assess the dissatisfaction of the local community, the civil society and other stakeholders. There was no effective communication and consultation with the affected people. As a result the stakeholders felt that they have been deprived of their land, of their accommodation, of their traditions and of the society. This public management failure has led to the failure of the project which could be avoided by developing a partnership among the local community, the civil society, the coal extraction company, the government and other stakeholders. community people and this led to the realization that they had been robbed of their land, property, culture and social life.

Consultation:
Groups outside government expect involvement in decision making. The legitimacy of much policy making now rests on exchange of information between citizens and their government. Public servants and politicians need to find ways to discuss with relevant communities of interest. Consultation serves specific purposes. But it also reflects other values like open and transparent government. Without consultation, legitimate and workable solutions of many problems prove elusive. Rather than despair at the complications, policy makers should develop tools for better consultation and thus can provide opportunities for greater participation in the policy cycle.

Right to Information:
People, particularly in the local area, have the right to get information about any deal or policy where they are the stakeholder. Disclosure of information makes things transparent for the stakeholder so that they can contribute to the effective implementation of project. Access to information can also work as a building block to form partnership between the state and the society. Third Way Social Governance: To address the problems of social exclusion and disadvantage, governments are giving more attention to the role of civil society. They are also developing a range of mechanisms including community building, citizen engagement and joined-up government strategies. These initiatives exclude or minimize the role of the state. Reference:
ADB (2005) BAN: PHULBARI COAL PROJECT. Asian Development Bank. ADB (2008) Press Release: Asian Development Bank Pulls Out of Controversial Phulbari Coal Project in Bangladesh. AEC (2006) Environmental Assessment Report. Asia Energy Corporation (Bangladesh) Pty Ltd. BOTSMAN, P. & LATHAM, M. (Eds.) (2001) The Enabling State: People before bureaucracy, Annadale NSW, Pluto Press. BRIDGMAN, P. & DAVIS, G. (1998) The Australian Policy Handbook, Crows Nests, NSW, Allen & Unwin. CURTAIN, R. (2006) Engaging Citizens to solve major public policy Challenges. IN COLEBATCH, H. K. (Ed.) Beyond hte Policy Cycle: the policy process in Australia. Crows Nest, Allen & Unwin. CUTHILL, M. & FIEN, J. (2005) Capacity Building: Facilitating citizen participation in local governance. Australian Journal of Public Administration, 64, 63-80. DAILY-STAR (2007) Right to info a must before any int'l deal. The Daily star. Dhaka. ENVIRONMENT, D. O. T. (1995) Involving Communities in Urban and Rural Regeneratio: A Guide for Practitioners. IN ENVIRONMENT, D. O. T. (Ed.). London, Department of the Environment. GCM (2008) Phulbaro Coal Project. GEDDES, M. (2000) Tackling Social Exclusion in the European Union? The Limits to the New Orthadoxy of Local Partnership. International Journal of Urban and Regional Research, 24, 782-800. GEDDES, M. (2001) Local partnerships and social exclution in the United Kingdom: a stake in the market. IN BENINGTON, M. G. J. (Ed.) Local Partnerships and Social Exclusion in the European Union: New forms of social goernance? London, Routledge. JACSES (2007) Position Paper: ADB should not finance the Phulbari Coal Project. Japan Center for a Sustainable Environment and Society. LOWNDES, V. & SKELCHER, C. (1998) The dynamics of multi-organizational partnership: an analysis of changing modes of governance. Public Administration, 76, 313-333. NEWAGE (2007a) Ban on open-pit coal mining demanded. The New Age. Dhaka. NEWAGE (2007b) Draft coal policy eyes ban on export. The New Age. Dhaka. OSBORNE, S. P. (1998) Partnerships in Local Economic Development. Local Economy, February 290-295. REDDEL, T. (2004) Third Way Social Governance: Where is the State? Australian Journal of Social Issues, 39, 129-142. ROSE, N. (2000) Community, Citizenship, and the third Way. American Behavioral Scientist, 43. SAMAD, A. (2008) Banglar Manush will surely use Banglar Koila. Economic Times. Dhaka, Tulip Printers.

Conclusion:
Partnership is the banner under which society can be invited to join as stakeholder in its outcomes. This is not however a model where business makes a substantive commitment to a more just society, but one in which society is a stakeholder in respective initiatives. This communitarian thought empower local communities with greater responsibilities for their own future(Geddes, 2001). Research evidence shows that in some places and in certain ways local partnerships may offer greater recognition to excluded groups and may exploit the contribution of diverse social interests to bring added value to local policy initiatives(Geddes, 2000). In our case study we observed that dealing with the multiple pressure of general public and civil society about how to extract and manage the coal mine project requires the cooperation of the local community of Phulbari, the civil society and the state. This reflects that community has emerged as a policy response to the failure of market approach of big state to manage issues affecting the society(Reddel, 2004). The increasing concentration on localized dimensions of the state, however, need not exclude the capacity of network social governance structure. Future directions of policy development, execution and research should be based on an active civil society and active state comprising a mixture of democratic institution and networks.

Reflection:
The Phulbari Coal Mining project has become a case of public management failure. A close look at the literature of public management and case analysis of coal mine project leads us to some fundamental issues which deserves careful consideration. Thoughts on new public management, third way social governance have focused on these issues to make public management more effective and efficient.

Community Involvement:
Involving the community through partnership has a range of benefits. It facilitates better decision making, enhanced cost effectiveness. The challenge for policy-makers is to work out ways in which community can be engaged with the complexity of a problem. Phulbari Coal Mine project has been a complete failure in this respect. There was no effective engagement of community at the development process of the project. The lack of involvement developed mistrust among the
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The Cost and Management, November-December, 2011

Accounting Prospect of Forensic Accounting In Bangladesh

S. M. Zahir Uddin Haider, FCMA * Abu Sayeed Nooruddin Ahmed**
Abstract: Forensic accounting is not a new field in accounting. However it becomes so important recently and has been an interest to various stakeholders, from the government, investors, and practitioners to regulatory bodies. Forensic and investigative accounting is the application of financial skills and investigative mentality to unresolved issues, conducted within the context of the rules of evidence. As a discipline, it encompasses financial expertise, fraud knowledge, and a sound knowledge and understanding of business reality and the working of the legal system. Its development has been primarily achieved through on-the job training as well as experience with investigating officers and legal council. Corporate failures have placed forensic accounting into the limelight. The objective of this study is to present the views regarding forensic accounting and its prospect in Bangladesh. Keyword: Forensic Accounting, Auditing and Investigation.

Introduction
Increasing government regulations and pressures from other stakeholders have made businesses acutely aware of the consequences of employees misdeeds and inadequate internal controls. Companies are now beginning to be more determined than ever to ensure their operations are above board and in no way connected with illegal activities. This resulted in a steadily growing demand for professionals trained in the art of detecting, correcting and preventing fraud as well as deceptive accounting practices. The three of the top six accounting niche services fall within the forensic accounting area: business valuations, litigation support and forensic/fraud (Covaleski, 2003). To the knowledge of the authors so far, there is no institution has offered forensic accounting course in Bangladesh. This study therefore attempts to seek identify the prospect of forensic accounting.

account both the financial records and the conduct of employees. Unlike other accountants, when forensic accountants conduct audits, they are actively looking for signs of fraud. In addition to examining financial statements to determine whether they are accurate and complete, they may seek out internal databases and court records. Because people committing fraud have hidden the evidence of their crimes, forensic accountants must look beyond the numbers and anticipate criminal actions. To date, various definitions have been given to describe forensic accounting. According to Thornhill (1995), the forensic accounting discipline is relatively new that up to now, there has been no formal definition being accepted as the standard. Websters Dictionary defined forensic as pertaining to, connected with, or used in the courts of law or public discussion and debate . Hence, forensic accounting is closely related to the legal process and has the potential to be involved in proceedings in the civil and criminal courts. Forensic accounting provides an accounting analysis to assist in legal matters which will form the basis for discussion, debate and ultimately dispute resolution. Bologna and Lindquist (1987) provide the definition of forensic accounting as follows: Forensic and investigative accounting is the application of financial skills and investigative mentality to unresolved issues, conducted within the context of the rules of evidence. As a discipline, it encompasses financial expertise, fraud knowledge, and a sound knowledge and understanding of business reality and the working of the legal system. Its development has been primarily achieved through on-the job training as well as experience with investigating officers and legal council. Robert G. Roche describes a forensic accountant as someone who can look behind the faade-not accept the records at their face value- someone who has suspicious mind that the documents he or she is looking at may not be what they purport to be and someone who has the expertise to go out and conduct a very detailed interviews of individuals to develop the truth, especially if some are presumed to be lying .

What is Forensic Accounting?

Forensic accounting is the specialty practice area of accountancy that describes engagements that result from actual or anticipated disputes or litigation. "Forensic" means "suitable for use in a court of law", and it is to that standard and potential outcome that forensic accountants generally have to work. Forensic accountants, also referred to as forensic auditors or investigative auditors, often have to give expert evidence at the eventual trial. Forensic accountants are more than just number crunchers who happen to work on criminal or civil disputes -- these accountants possess additional skills. They must conduct investigations, know how to use a variety of computer programs and communicate well. Some forensic accountants specialize in specific industries that are susceptible to fraud, such as insurance or banking, and learn the business practices associated with those fields . Because the reputations of individuals and companies are at stake, forensic accountants must be very discreet when conducting their investigations. They must be independent and impartial, taking into
* Mr. S. M. Zahir Uddin Haider FCMA, Controller of Accounts & Finance, Southeast University, Dhaka , House No:64/B,Road 18,Banani, Dhaka 1213, Bangladesh, Email:smzuhaider@gmail.com ** Mr. Abu Sayeed Nooruddin Ahmed, Lecturer, School of Business, Southeast University, Dhaka, House No: 64/B, Road 18, Banani, Dhaka 1213, Bangladesh, E-mail: asn_seu@yahoo.com

History of Forensic Accounting:

In ancient Egypt, forensic accountants who inventoried the Pharaohs grain, gold and other assets were called the eyes and ears of the Pharaohs. Another evidence of the existence of forensic accounting can be traced back to the year 1817 when the accountant who
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Accounting
examined the bankrupts account was required to testify in the court case (Crumbly, 2001). Some sources traced the practices origin back as far as 19th century Scotland when a young Scottish accountant issued a circular advertising his expert in arbitration support in 1824. In the late 1800s and 1900s articles began to appear discussing expert witnessing, evidence arbitration and awards. It has been said that the phrase forensic accounting was first published in an article in 1946 by Maurice E. Peloubet, a partner in a New York accounting firm. He stated that, during the war both the public and industrial accountant have been and now engaged in the practice of forensic accounting (Peloubet, 1946). How do forensic accountants work? Regardless of whether their assignments are criminal or civil, these accountants follow the same forensic accounting basics when conducting their investigations.First, they meet with a government representative, attorney or other client to learn the specifics of the alleged fraud. Then, they begin their initial research and plan the logistics of the investigation. The next step is to search the records -bank statements, credit statements, journals, ledgers, databases, emails and memos -- anything that will offer a bigger picture of the financial situation. After gathering the records, forensic accountants often conduct interviews with the accused and other involved parties to get individual stories about the irregularities. Forensic accountants must possess observational skills to pick up subtle hints or suspicious clues that may eventually lead them to the perpetrator. Clues may include new cars, numerous vacations and starting additional businesses without other visible sources of capital. How far will forensic accountants go to obtain information? It all depends on the nature of the case. In criminal cases, they usually work with law enforcement and the district attorney's office. Just as with other types of evidence, the prosecution must obtain search warrants and subpoenas to locate financial information and compel knowledgeable people to give interviews about the situation in question. If the case is civil, they're empowered by the client, who is usually a part of the company being investigated or holds agreements that permit accounting investigations. After gathering all of the information, a forensic accountant begins the analysis. He or she may trace the assets of the company, calculate the total loss and exactly how it occurred, and summarizes various transactions. The final step (unless the accountant is also testifying in court) is to prepare a report detailing the plan of action and what the investigation uncovered. This may include graphs, charts, spreadsheets and other methods of explaining the case. Scope of Forensic Accountant: The American College of Forensic Examiners (ACFE) has developed an additional training, testing, and certification to give added qualifications to CPAs working in the field of litigation support and forensic accounting. The term forensic accountant refers to a Certified Public Accountant who performs an orderly analysis, investigation, inquiry, test, inspection, or examination in an attempt to obtain the truth and from which to form an expert opinion. Forensic accounting and litigation support includes services CPAs provide in legal matters. William Dunton, Chairman of the American Board of Forensic Accounting, comments that, "the specialty of forensic accounting has grown for several different reasons, the most important of which is the recognition by other professionals of the value of the service.
26

Whether it is investigation or litigation, the accountant's role can be a very important part of the process. Some other reasons for the growth in this specialty would be the increased tendency of our society to resolve its disputes through courts of law, the increased complexities of our society, and the decrease in integrity within our society. Engagements relating to civil disputes may fall into several categories: calculating and quantifying losses and economic damages, whether suffered through tort or breach of contract; disagreements relating to company acquisitionsperhaps earn outs or breaches of warranties; and business valuation. Forensic accountants often assist in professional negligence claims where they are assessing and commenting on the work of other professionals. Forensic accountants are also engaged in marital and family law of analyzing lifestyle for spousal support purposes, determining income available for child support and equitable distribution. Engagements relating to criminal matters typically arise in the aftermath of fraud. They frequently involve the assessment of accounting systems and accounts presentationin essence assessing if the numbers reflect reality. The types of crimes forensic accountants investigate are classified as "crimes against property." They investigate crimes such as fraud and give expert testimony in court trials. They also perform work related to civil disputes. Forensic accountants are also known as fraud investigators, investigative accountants, forensic auditors or fraud auditors. Although forensic accounting may not sound as glamorous as its other investigative counterparts, the field has received more attention in recent years. This is due in part to the high-profile, financial white-collar crimes involving large corporations, such as the Enron and Adelphia Communications scandals of 2001 and 2002. The federal government of USA employed impartial forensic accountants to uncover the extent of the fraud and other accounting irregularities practiced by executives and the accounting firms associated with them. The American Institute of Certified Public Accountants (AICPA) indicates that this person searches for evidence of criminal conduct or assists in the determination of, or rebuttal of, claimed damages. They question seemingly harmless documents and look for inconsistencies. The title of a newspaper article best describes an investigative accountant: "Detectives Hunt for Cooked Books." The article describes a forensic accounting firm, such as Smith, Sibley & Co., in Dallas, Texas: Robbers do not need guns. Pencil and paper will do. Opportunity and greed are thievery's driving forces. Put enough zeroes behind a number, and it's amazing how flexible morals become. How many years in prison would you do to accumulate a half a billion dollars in your bank account. With white collar crime, insurance scams, the federal savings and loan debacle, and computer crime reaching $3 billion per year, there is a need for a new breed of forensic accountants like James Smith and Ken, Sibley in Dallas. With their magnifying glasses, computer print-outs, and calculators, this glamour profession should rate a television series such as "Designing Accountants" or "Fraud Busters." They certainly have destroyed the green eye shade image.
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Accounting
Prevailing practices of forensic Accountant:
Forensic accounting work is performed by IRS and FBI agents. The FBI has twice as many forensic accountants today as they had in 1992. The IRS has an advertising poster with a picture of Alphonse Capone. The poster states: only an accountant could catch Al Capone. Infamous mobster al Capone wasn't easy to catch until special agents of the IRS stepped in and charged him with tax evasion. This crime Czar's career came to an end. This is proof that sometimes only the accountant can apprehend the criminal. According to an article in the New York Times by Glenn Collins, entitled "A New Kind of Detective for the Longer Goodbye," Richard Friedman is a forensic accountant, an investigative number-cruncher who assesses the value of privately held corporations and family businesses, and ferrets out spouses. corroborating evidence for the types of corruption in bank suggested by the diagnostic reports. Of 620 households in the TIB survey of corruption in Bangladesh, 53 had taken out a bank loan and 30 of them used bribery or influence to secure the loan. Non-cash bribes to bankers have included entertainment and gifts, all expense paid vacations for the family, payment of club bills, highpaying positions in the borrower's firm for the bankers or their family members, allotment of plots in housing development projects, houses or apartments, shares of the borrower's corporation, and offer of admission in schools or universities along with scholarships. A continuation of small gift-giving may be necessary for relationship maintenance and these may include color televisions, refrigerators, jewelry, and dinner parties. In general the acceptance of the gift implies the acceptance of the deal and it creates an expectation on the part of the giver and an obligation on the part of the taker. There are several distinct areas of corruption in the banking industry in Bangladesh. These may include dictation loans ,fictitious loans ,insider loans to government officials, diversion of interest payments ,captive government deposits in government banks ,use of bribery to facilitate loans ,use of bribery or influence to subvert the loan approval process ,labor union intervention in loans, procurement, and recruitment ,sale of a forgivable loan ,use of bribery or influence to obtain a "sick industry" classification ,use of bribery or influence to re-schedule loans ,use of influence to waive regulatory restrictions ,use of influence or political power to forestall action on defaulted loan, bribe demanded by bank officials to release funds ,bribery of external auditors by bank managers ,bribery to manipulate technical loopholes in bank regulation etc.(Munshi,TIB,1999) The increasing need for forensic and investigative accounting in the banking sector is tied to the factors like pervasive increase in deviant behavior, resulting in higher rates of fraud in the banking sector ,borderless societies resulting from globalization, making geographical distance and boundary irrelevant as protection from criminals and fraudsters, obtuse, irresponsive, opaque laws and regulations with loop holes that the unscrupulous exploit, regulations that create monopoly of decisions in the hands of bureaucrats, growing interest in litigation as a means of dispute resolution ,the widespread use of digital technologies that have alternative traditional means of record keeping and retrieval, causing clients to now rely more than ever on specialist forensic experts to generate evidence needed to pursue cases, the nature of modernday banking involves large volume of complex data . If well applied, forensic accounting could be used to reverse the leakages that cause bank failures and so enhance trust and development in the banking industry. This can be attributed to the fact that proactive forensic accounting seeks out errors, operational vagaries and deviant transactions before they crystallize into fraud. This could go a long way in preventing 'legacy crimes' where the perpetrator has tampered with the footprints and audit trials and left the organization. The 2002 Money Laundering Prevention Act (MLPA) laid the original foundation of Bangladeshs anti-money laundering (AML) framework. However, the government has sought to expand the regime and the Money Laundering Prevention Ordinance (MLPO) was introduced in April 2008; in February 2009 it was reissued as an act of parliament by the new government. In June 2008 the government also enacted the Anti-Terrorism Ordinance which criminalized terrorist financing for the first time. Similarly, this was reissued as an act in early 2009. [ Contd. Page-43 ]
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The Need to Develop Forensic Accounting in Bangladesh:

Forensic accounting is seen as an important tool that will assist investigators not only to prosecute crimes such as bribery but also other criminal wrongdoings such as fraud, money laundering and other white collar crimes. On December 26, 1996, the SEC constituted an Enquiry Committee to investigate into the irregularities of stock market activities during July 1996 to November 1996. On March 27, 1997, the Enquiry Committee, headed by the vice chancellor of Jahangirnagar University, submitted the report identifying a number of companies and some of the country's biggest brokers who were apparently involved in market rigging. Based on the report, on April 2, 1997, the chief metropolitan magistrate court issued arrest warrants against 32 people in 7 brokerage firms and 8 listed companies. The SEC also filed 15 share-scam cases in the High Court Division of the Supreme Court of Bangladesh. The High Court, however, granted anticipatory bails to the accused along with nine others on April 6, 1997. Since then the government officials at SEC were unable to say anything about the status of the cases. In 2002, the Securities and Exchange Commission (SEC) has formed two separate committees comprising the officers of the regulatory body to carry out detailed investigation about the "unfinished task" of the previous committee on 1996 share scam. SEC member K. Iftikhar Ahmed has been made convener of the two committees. However, as anticipated, these newly formed committees also failed to complete the "unfinished task". In 2007, according to Motley Fool Global Gains research report, in terms of stock return, Bangladesh stands first in the list with 134 percent return. China, Ukraine, Nigeria comes next in the list with 132 percent, 125 percent, 110 percent and 106 percent return respectively. Our bourses are making "record transactions" almost every week. Still many investors are avoiding investing in the stock market because of the memory of 1996. To some, still investing in the stock market is synonymous with gambling. Hardly any major international investor committed any significant fund in any of our bourses. The stock market scam in 1996 is still a stain to domestic and international investors. Thus even for the sack of attracting quality investment from home and abroad, we need to ensure justice in the market place and the presence of forensic accountant could help a lot in this matter. A survey of consumers carried out by the TIB in 2008 provides
The Cost and Management, November-December, 2011

Information Technology Designing an Information System: Major Considerations, Benefits & Constraints
Md. Abdul Hakim *
Abstract: Information systems have become integral, online, interactive tools in decision making of any organizations. It requires specialised organizational sub units information specialist and a host of other environmental factors; information system must be designed to serve the needs of important organizational groups, shaped by the structure, tasks, goals, culture and management of the organization. Implementation of a new system is difficult because of organizational change requirements and resistance to new systems. Practically, information systems can play a special role incorporate quality programs through developing effective managerial decisions. It can support a variety of management decision making levels and decisions. These are strategic, tactical and operational decision making. It can be used to strategically improve the quality of business performance. Keywords: IS, IT, JIT, Quality, Performance, ESS, DSS, TPS, MIS and KWS.

Introduction
Information systems include all systems and procedures involved in the collection, storage, production and distribution of information. Information technology describes the equipment used to capture, store, transmit or present information. Information systems provide a large part of the information systems infrastructure. Information management refers to the approach an organization takes towards the management of its information systems, including Planning IS/IT developments; Organizational environment of IS; Control; Technology. The term information systems (IS) strategy refers to the long term plan concerned with exploiting IS and IT either to support business strategies or create new strategic options. Various types of information is as follows: 1 Strategic information: Strategic information is used to plan the objectives of the organization, and to assess whether the objectives are being met in practice. Such information includes overall profitability, the profitability of different segments of the business, future market prospects, the availability and cost of raising new funds, total cash needs, total manning levels and capital equipments needs. Strategic information is derived from both internal and external sources; Summarized at a high level; Relevant to the long term; Concerned with the whole organization; Often prepared on an adhoc basis; quantitative and qualitative; Uncertain, requiring assumptions to be made regarding the future. Tactical information: Tactical information is used to decide how the resources of the business should be employed, and to monitor how they are being and have been employed. Such information includes productivity measurements (output per hour) budgetary control or variance analysis reports and cash flow forecasts, staffing levels and profit results within a particular department of the organization, labour turnover statistics within a department and short-term purchasing requirements. Tactical information is primarily generated internally; summarised at a relatively low level; relevant to the short and medium terms; concerned with activities or departments. Prepared routinely and regularly; based on quantitative measures.
* Mr. Md. Abdul Hakim, Senior Lecturer, School of Business, Asian University of Bangladesh, Uttara, Dhaka-1230. E-mail: hakimmbarubd@yahoo.com

Operational information: Operational information is used to ensure that specific operational tasks are planned and carried out as intended. In a payroll office, for example, operational information would include the hours worked by each employee and the rate of pay per hour. Operational information is; derived from internal sources; Detailed being the processing of raw data; Relevant to the immediate termTask-specific; Prepared very frequently; largely quantitative. 2 Objectives of the study: The major objects of the study are to highlight the importance of information system, various types of information system, and their inter relations, and management challenges in developing effective information system. Methodology followed: The study is descriptive in nature based on secondary literature with emphasis on existing stock of knowledge. The qualities of good information: Good information is information that adds to the understanding of a situation. The qualities of good information are outlined in the following table. 3
Quality Accurate Components Figures should add up, the degree of rounding should be appropriate, there should be no typos, items should be allocated to the correct category and assumptions should be stated for uncertain information. Information should include everything that it needs to include, for example external data if relevant, or comparative information.

Complete

Cost-beneficial It should not cost more to obtain the information than the benefit derived from having it. Providers or information should be given efficient means of collecting and analyzing it. Presentation should be such that users do not waste time working out what it means. User-targeted The needs of the user should be borne in mind, for instance senior managers need summaries and junior ones need detail. Relevant Authoritative Information that is not needed for a decision should be omitted, no matter how interesting it may be. The source of the information should be a reliable one (not, for instance, Joe Bloggs predictions page on the internet unless joe Bloggs is known to be a reliable source, for that type of information)

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Information Technology
Timely Easy to use The information should be available when it is needed. Information should be clearly presented, not excessively long, and sent using the right medium and communication channel (e-mail, telephone, hard-copy report etc).

threats, vulnerabilities and suggests corrective actions. These factors are analysed, evaluated and presented in a practical meaningful perspective. The Decision Making Factor that justifies the selection of corrective action with respect to related risk is also calculated. Prof. Md. Habibullah7 had a study on Aspects of Information Management. He saw that effective planning and control in any organization always requires information. We are in the midst of a sophisticated information technological break through. We may take lessons from the experience of USA, UK and other developed countries. These countries have gained significant doses of productivity upsurges. Use of computers in information gathering, processing, storage and use has proved to be a boon to these countries, both in business firms and government offices. Information technology has assisted in energy saving tremendously. Time saving by managers, policy makers, Govt. officers and administrators has been quite impressive. Banks, insurance companies, audit offices, police administration, investigation agencies and public libraries have bettered their service standards with the assistance emerging from computer technology. Millions of dollars have been saved. Decision making process have been quickened and red-tapism substantially reduced. Our neighboring countries have been marching ahead in the field of information technology. Their national information center has achieved remarkable success in information collecting, processing, preserving and using in diverse fields. Costsaving in the promotion of agriculture, animal husbandry, grouped, water utilization, employment generation, manufacturing industry, tertiary activities and social services has been quite spectacular. Ricardo Chalmeta and Reyes Grangel8 authored an article on Methodology for the Implementation of Knowledge Management Systems . They said that managing knowledge means managing the processes of creation, development, distribution and utilization of knowledge in order to improve organizational performance and increase competitive capacity. However, serious difficulties arise when attempts are made to implement knowledge management in enterprises. One of the reasons behind this situation is the lack of suitable methodologies for guiding the process of development and implementation of a knowledge management system (KMS), which is a computer system that allows the process of creating, collecting, organizing, accessing and using knowledge to be automated as far as possible. In this article we propose a methodology for directing the process of developing and implementing a knowledge management system in any type of organization. The methodology is organized in phases and outlines the activities to be performed, the techniques and supporting tools to be used, and the expected results for each phase. In addition, we show how the proposed methodology can be applied to the particular case of an enterprise. Ilhan Dalci9 had a study on Benefits of Computerized Accounting Information System on the JIT Production system. He mentioned that advancements in information technology (IT) have enabled companies to use computers to carry out their activities that were previously performed manually. Accounting systems that were previously performed manually can now be performed with the help of computers. Therefore, improvements in the information technology have facilitated the use of cost and management accounting procedures. On the other hand, most of the companies have started to apply just-in-time (JIT) production system as a tool to become competitive. Companies applying JIT production system aims at minimizing all inventory levels and delivering the goods and
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It is Interrelated components working together to collect, process storeg, and disseminates information to support decision making, coordination, control, analysis, and visualization in an organization. Information is the data that have been shaped into a form that is meaningful and useful to human beings. Information systems transform raw data into useful information through three basic activities like input, processing and out put. In todays globalized and information based economy, technologies have become more powerful and difficult to implement. There is greater, need for interaction between professional technical expects and general management. Effective controls provide information system security which is the accuracy, integrity and safety information system activities and resources. An effective control also provides quality, assurance for information systems.

Review of Related Studies

KV Ramani4 made an important study entitled Information Technology for Competitive Advantages: Case Studies from Singapore . He stated that a few case studies from Singapore on harnessing the potential of Information, Technology (IT) for competitive advantage. The organization chosen for their case studies are: (i) Trade Development Board, a statutory Board of the Government of Singapore, (ii) Development Bank of Singapore in the private sector, (iii) YCH distripark in the Local Enterprise Category, and (iv) DHL, a multinational organization. All these organizations have won several awards for achieving superior business performance through strategic applications of Information Technology. In the early stages, computer was primarily used for routine data processing activities and in the area of retail banking. In 1985, the Bank adopted a business strategy to concentrate on all areas of Banking and to rely on Information Technology (IT) to support its business strategy. The Bank chose a number of innovative applications for computerization, resulting from the strategic decision to understand the information requirements in each of its areas of operation, namely retail banking, corporate banking, investment banking and treasury operations. B.H. Jajoo5 prepared an important study entitled Managing Information Technology Infrastructure . He stated that the Information Technology (IT) is rapidly becoming an integral part of the organizations core infrastructure for managing and executing various business activities. Many organizations are in the midst of planning business solution based on local/wide area networking and the packages cut across all parts of the organization. Budgets allocated for IT are swelling year by year to build the necessary IT infrastructure to conduct business activities of the organization. A large proportion of IT, staff is today overloaded with the work of building upgrading, and managing this IT infrastructure. Rajib Srivastava and RN Tiwari6 had on a study on A cost / Benefit / Risk (CBR) Analysis of a Computing System . He explains that the MIPS are a multilevel protection system that is used as an information system (IS). It provides a powerful security to sensitive information by MIPS Encryption Algorithm (MEA) and System Run time Checker (SRTC) an authentication module. He describes a compound cost/benefit/risk (CBR) analysis methodology and its application in MIPS for assessing the security
The Cost and Management, November-December, 2011

Information Technology
services to customers in time. In this sense, use of IT has also helped companies apply JIT production system more effectively. The aim of this paper is to identify how improvements in IT have influenced accounting system. More importantly, this paper also focuses on examining the benefits of information technology for companies applying JIT production system. (d) (e) (f ) (g) (h) Repair maintenance and follow up. Improves products / services by increasing quality, reducing costs. Better monitoring of quality control. Improve the management process. Provides better information on a timely basis.

Classification of Information System

Information is different from data. Data is an input to an information system. Information is the processing output that is organized, meaningful and useful. The characteristics of information are reliability, relevance, timely completeness, understandable and verifiable. Formal and Informal: Formal information is that which has an explicit responsibility to produce information. An informal system is that as arises out of need not satisfied by normal channel.

Organizational Structure and Information Systems

The way of authority and allocation of responsibility determine the information needs of various departments of an organization. Functional organizations structure groups together employees with the same or similar occupational specialties like marketing and personnel etc. Divisional organizational structure groups together employees into independent divisions that operate as separate organizations. Information needs also determine the required structure of data collection and processing activities.

Manual vs. Computer

Manual systems are those in which the processing tasks are performed by people. Computer systems are those in which processing is done by computer. People are flexible and are able to adapt to new situations. But people are unreliable and slow. The computer is fast and reliable. These are less flexible and have high initial costs. Large scale systems serve many users through central mainframe computer. Small scale systems are personal computers distributed among users.10

Users and Beneficiaries of Information Systems

(a) External users are mainly customers, supplier, stock holders, employees, lenders and government authorities. (b) Internal users are marketing management, purchasing and inventory central management, production management, personnel management and financial management we know that most of the information supplied to external users is mandatory but information given to internal users is discretionary. Managerial decisions require more detailed information than is needed for external reporting. We know that in a business there are five business cycles like revenue cycle, expenditure cycle, production cycle, financial management cycle. The expenditure cycle may be both purchasing cycle and payroll cycle.11

Comparison of Manual versus computer-Based Information Systems:

Understanding the Technology Developing specifications Easy: usually human processing or simple tabulation operation Very informal and easily changed when tried Difficult: arbitrary and poorly understood technology from standpoint of users A formal process requiring great precision and detail; must be specified in advance. Very difficult to complete on time an within budget Can be a major task requiring significant changes and training Can be significant, involving behavioral and organizational changes

Business Perspective on Information Systems

From a business perspective an information system is an organizational and management solution based on information technology, to a challenge posed by the govt. Contemporary approaches to information system deal with issue and insights contributed from technical and behavioral disciplines. We have strategic level system, knowledge level system and operational level system. Strategic level system support, the long term planning activities of senior management, knowledge level systems support knowledge and data workers in an organization while operation level systems monitor the elementary activities and transactions of an organization.

Managing project Converting and installing Organizational impact Flexibility

Simple to institute procedures Usually an easy process involving a few new procedures Often minimal

Characteristics of Information Processing System

Executive support system: Aggregate both external and internal; data. Projections and responses to queries are made. Decision support system: Low volume data follows analytical methods. Special reports, decision analyses, responses to queries are made. Management information system: Summary transaction data, high Volume data and simple models are used. Summary and exception reports are there. Knowledge work system: Design specifications and knowledge base through modeling and simulations.
The Cost and Management, November-December, 2011

Usually easy to change Often very difficult to quickly modify; changes can be costly and time consuming.

Information systems and value of the business: Value chain of a business is enhanced by effective information systems through the following dimension. (a) (b) (c)
30

Receiving storing and distribution of resources. Operation activities conversion of materials into final products / services. Distribution of products / services to customers.

Information Technology
Office automation system: Documents and schedules are prepared through clerical workers. Transaction processing system: Follows the transactions and events through detailed reports and summaries.12 and development activities, product design etc. are very important for designing information system of an organization. The existence of a model for interpreting information demands for particular information system. The presence of different interpretational models creates many serious problems for the designer and user of information systems. First, the meaning of information is clearly in the mind of the recipient. What one party perceives as useful and relevant information may be meaningless to another person. Even more serious is a situation where two individuals agree on the importance of information but develop completely opposite interpretations of what the information means. To review, Anthony proposed three types of decision based on information systems: (i) Strategic planning is the process of deciding on organizational objectives and the means for achieving them; the planner focuses on the relationship between the environment and the organization. (ii) Managerial control decisions involve a manager ensuring that resources are used efficiently and effectively to achieve the objectives stated during strategic planning. Managerial control decisions are often subjective in their interpretation of information; interpersonal interaction is important in these decisions. (iii) Operational control decisions involve ensuring that specific tasks are completed efficiently and effectively. References
Laudon, K.C. and Laudon, J.P. Management Information Systems, Prentice Hall of India New Delhi, 2000. pp. 1-2. Wilkinson, J.W. and Cerullo, M.J., Accounting Information Systems, John Wiley and Sons, New York, 2002. pp. 7-12. Hutchinson, S.E & Sawer, S.C., Computer & Information Systems, Irwin, Chicago, 5th edition, 2007. pp. 379-382. Ramani, K.V., Information Technology for Competitive Advantages: Case Studies from Singapore , IT for Organizational Excellent; Proceedings of the 32nd annual Convention of the Computer Society of India, Nov. 1997, pp. 3-9. Jajoo, B.H., Managing IT infrastructure , IT for Organizational Excellent, Proceedings of the 32nd Annual Convention of the Computer Society of India, Nov. 1997, pp. 80-82. Rajib, Srivastava & Tiwari, R.N., A Cost / Benefit / Risk (CBR) Analysis of a Computing System, IT for Organizational Excellent, Proceedings of the 32nd Annual convention of the Computer Society of India, Nov. 1997, pp 85-98. Habibullah, M. Aspects of Information Management , The Cost &Management Accountant, May-June 1992, Vol-xx, No.-3, pp.7-10. Ricardo Chalmeta and Reyes Grangel Methodology for the Implementation of Knowledge Management Systems. Published online January 2008 in Wiley InterScience (www.interscience.wiley.com), Journal of the American Society for Information Science and Technology, 59(5):742-755, 2008. Dalci, I. Benefits of Computerized Accounting Information Systems on the JIT Production systems. Review of Social Economic & Business Studies, vol.-2, pp.45-64. Hutchinson, op.cit, p-378. Hossain, S.M., Business Application on Informational Technology, ICMAB, 2000, pp.50-56. Davis, Management Informatiom Systems, McgrawHill Book co. USA, 2007.pp.31-33. Kieso, D.E & et.al, Intermediate Accounting, Wiley & Sons, USA, 2008. pp.61-66.

Improvements to information:
The table below contains suggestions as to how poor information can be improved.13
Feature Accurate Example of possible improvements Use computerized systems with automatic input checks rather than manual systems. Allow sufficient time for allocation and analysis of data if pinpoint accuracy is crucial. Incorporate elements of probability within projections so that the required response to different future scenarios can be assessed. Include past data as a reference point for future projections. Include any planned developments, such as new products. Information about future demand would be more useful than information about past demand. Include external data. Always bear in mind whether the benefit of having the information is geater than the cost of obtaining it. Information should be summarized and presented together with relevant ratios or percentages. The purpose of the report should be defined. It may be trying to fulfil too many purposes at once: Perhaps several shorter reports would be more effective. Information should include exception reporting, where only those items that are worthy of note and the control actions taken by more junior managers to deal with them are reported. Authoritative Use reliable sources and experienced personnel. If some figures are derived from other figures the method of derivation should be explained. Timely Information collection and analysis, by production managers needs to be speed up considerably, probably by the introduction of better information systems. Graphical presentation, allowing trends to be quickly assimilated and relevant action decided upon. Alternative methods of presentation should be considered, such as graphs or charts, to make it easier, to review the information at a glance. Numerical information is sometimes best summarized in narrative form or vice versa. A house style for reports should be devised and adhered to by all. This would cover such matters as number of decimal places to use, table headings and labels, paragraph numbering and so on.

Complete

Cost beneficial User targeted Relevant

Easy-to-use

Conclusion
Technological changes are one of several key factors that affect business. It is important to keep abreast of technological changes and to anticipate them. Change is constant and accelerating. Understanding of information system is essential for auditor, accountant, manager and management consultant. The firms information structure, human resources, uses of technology, research

The Cost and Management, November-December, 2011

31

Human Resource The Relationship of Affective Commitment with Recognition and Empowerment Practices: An Empirical Study
Mohammed Rafiqul Alam, MBA, FCMA* Mohammad Moinul Haque** Mir Md. Tariqul Alam***
Abstract: This study aims at exploring the effect of recognition and empowerment practice over affective commitment in the context of Bangladesh. It also intends to find out the mediating role of recognition practice and empowerment practice over one another toward affective commitment. A total of 194 responses from 18 organizations are collected and analyzed objectively. It was found that recognition and empowerment practice have positive effect over affective commitment and both the HR practices mediate one another toward affective commitment. The study also identifies two types of empowerment: formal and informal. Formal delegation of authority empowers employees formally. In case of informal empowerment, as we found, power is earned informally and also dependent on the acceptance of other members of the organization. Keyword: Affective Commitment, Recognition Practice, Empowerment Practice.

Prelude
Human resource is now considered as one of the most important tools for the organizations to survive (Argyris, 1994). Drucker (1994) mentioned it as the most worthy strategic asset for organizations. A growing body of literature suggests that the implementation of proper human resource practices may contribute to corporate financial performance (Huselid, 1995). Thus, it is important for a firm to adopt proper human resource practices that make the best use of its employees. If fact, not only organizations now need employees who are capable but also are committed to go beyond what they are assigned to contribute. Capable employees with appropriate attitude add extra value to the organization. That is why organizations all over the world strive to retain capable employees having the right attitude. As a result, affective organizational commitment of the employees is now being considered as an issue of immense importance in management literature. The research in this area flourished during the 1980s and 1990s. The best body of research clearly suggests that employee commitment results in improved human resources performance (Benkhoff, 1997; Legge 1995; Guest, 1987, 1992, 1997, 1998). It is found that committed workers contribute to the organization in more positive ways than the less committed employees (Meyer and Allen, 1997). This has led the move by organizations to develop HR strategies that help to increase employee commitment to organizational goals and performance improvement (Sparrow and Marchington, 1998). But until now not many studies have been conducted to explore what HR strategies really contribute to the enhancement of affective commitment and
* Mr. Mohammed Rafiqul Alam, MBA, FCMA, Chief Audit Officer, Chittagong Port Authority & Adjunct Faculty, Independent University, Bangladesh, Chittagong ** Mr. Mohammad Moinul Haque, Associate Professor, Faculty of Business Studies, Academic Building # 03, Premier University, WASA, Chittagong, Email: mmhripon@yahoo.com, Phone: 01711 070716 *** Mir Md. Tariqul Alam, , Lecturer, Faculty of Business Studies, Premier University, WASA, Chittagong, Bangladesh,.

how they contribute. Rather these studies have mainly focused on the possible outcomes of affective commitment. Besides, the area of affective commitment in the Bangladesh context did not get much attention to the researchers. No significant study has so far been undertaken to investigate the consequences of affective commitment or its antecedences concerning Bangladesh. This study is set to fill up this gap. The importance of conducting such studies across cultures and countries is pronounced by Meyer (1997) in order to assess the generalizability of the research findings. Meyer (1997, p. 218) states, "the models of commitment . have been developed and tested in western countries. There is a need for more systematic research to determine whether these models apply elsewhere". Research in different country settings will enhance our understanding about the outcomes of human resources strategies in organizations and consequently organizations will better be able to retain qualified employees who have proper attitude.

Research Objectives
The prime objective of this study is to present and test a research model proposed in Figure 1 that addresses the effects of recognition practice and empowerment practice over affective commitment. The study will also investigate whether either recognition practice mediate the effect of empowerment practice or empowerment practice mediate the effect of recognition practice or both mediate the effect simultaneously over organizational affective commitment.

Theoretical Background
Organizational Affective Commitment The term commitment can be referred to as the willingness of social actors to give their energy and loyalty to a social system or an effective attachment to an organization apart from the purely instrumental worth of the relationship (Buchanan, 1974). It is also believed that commitment is developed through the process of identification in which a person experiences some ideas as an extension of the self (Iverson, 1996). According to Meyer and Allen (1997), a committed employee is the one who stays with the
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Human Resource
organization through thick and thin, attends work regularly, puts in a full day (and may be more), protects companys assets, shares company goals and others. Organization Commitment, when it was first conceptualized as a unidimensional behavior by Porter et al. (1974), is defined as the relative strength of an individuals identification with and involvement in a particular organization. They argue that an employee with this attitude believes in the goals and values of the organization, possesses willingness to exert considerable effort on behalf of the organization and holds a strong desire to retain membership in the organization. Later, when multiple type of commitment is surfaced, Meyer and Allen (1984) named this commitment as affective commitment. They argue that an employee, having this kind of commitment, is emotionally attached to, and identifies with the organization. Affective commitment relates to the way individuals view their employment relationship and how far their mindsets are congruent with the goals and values of the organization (Mowday, 1998; Meyer and Allen, 1997; Beck and Wilson, 2000) Meyer and Allen (1984), based on Side-Bet theory (see, for example, Becker, 1960), have also identified another dimension of organizational commitment, which they have termed as continuance commitment. An employee who possesses this kind of commitment is less emotional and more calculative considering the costs that would result in terms of interests such as pensions and security. Allen and Meyer (1990) have further developed another sort of organizational commitment that refers to employees feelings of obligation to stay with the organization, which they have termed as normative commitment. Such feelings of obligation result from a process of internalization of normative pressures either prior or following affiliation to an organization. Though recent theoretical developments in the commitment literature have highlighted the importance of employees multiple commitments (Meyer and Allen, 1997; Mowday, 1998; Baruch, 1998; Johnson, 1999), it is argued is that affective commitment expresses a more holistic approach to conceptualizing about the nature of the employee relationship as it rests on the individuals psychological bond and loyalty to the organization (OReilly 1991). Consequently, managers principally are more concerned with identifying how and why affective commitment develops to optimize the commitment levels of their employees (Metcalfe and Dick, 2001). Recognition and Empowerment Practice This study examines two specific human resource practices that an organization can utilize to increase affective commitment. Though recently several sets of innovative human resources practices have been proposed to enhance effectiveness in organizations and retain the capable employees for longer time (Arnett and Obert, 1995; Dessler, 1999; Pfeffer and Veiga, 1999) we have decided to consider only two of them namely recognition practice and empowerment practice. Several reasons have acted as motive behind selecting these two for the study. First, our personal observations and dialogues with working people at different levels of different organizations have convinced us that employees in Bangladesh are not empowered adequately to carry out the assigned responsibilities properly. Most employees criticize that, even if they work beyond their assigned responsibilities, they have little, if any, non-monetary recognition. This kind of practices helps employees not to raise any emotional bondage with the organization. Our objective is not to disclose whether they are
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really less empowered or less recognized rather whether the two HR practices i.e. recognition and empowerment practice, can be implemented to increase the affective commitment so that this kind of accusation can be eliminated. Second, usually it is seen that proper level of empowerment allows employees to make decision quickly which is crucial in this era of discontinuity for better performance. Third, empowerment leads to improved plans (one reason behind is increased employee participation). It also leads to effective implementation of plans (one reason behind is less resistance from employees). Both of which ultimately render better organizational performance. Fourth, practicing non-monetary recognition does not cost organization anything but helps to promote some elements such as trust, knowledge sharing, idea generation etc., effective use of which can provide competitive advantages that cannot be easily imitated by others. Many of the employees grumble that this kind of situation frustrates them and reduces their zeal that they possess at the early stage of their career with the organization. They also allege that less than necessary empowerment and lack of recognition have negative effects on their performance. In this study, recognition practices refers to non-monetary means (e.g. congratulation from supervisor, admiration from coworkers) by which an organization tangibly signals its appreciation of good quality work and accomplishments. This practice also includes the effort made by the organization to study employee suggestions carefully and provide them with regular feedback. On the other hand, in this study, we will consider empowerment that describes working arrangements which engage the empowered at an emotional level as defined by Conger and Kanungo (1988). Conger and Kanungo (1988) divide the concept of empowerment into two types relational and motivational. As a relational concept, empowerment is concerned with issues that relate with management style and employee participation. As a motivational construct, empowerment is individual and personal, it is about discretion, autonomy, power and control. Par et al. (2001) conducted a study taking six types of human resources practices and their effect on affective commitment where recognition practice and empowerment practice were also included. Their study has revealed that recognition practice and empowerment practice have statistically significant positive effect over affective commitment. The reason behind this sort of work attitude may be the outcome of motivation that develops among employees due to recognition and empowerment practice by the organization. Several other studies have found that a significant part of employee motivation comes from the recognition employees get from managers for a job well done (Locke, 1976, p. 1300; Agarwal and Ferratt, 1999; Gomolski, 2000). Empirical studies conducted by Rodwell et al. (1998) and Chen et al. (1998) have also found recognition practice having direct effects on affective commitment. For possessing affective commitment the empowered must feel a sense of personal worth, with the ability to affect outcomes and having the power to make a difference (Van Oudtshoorn and Thomas, 1993; Johnson, 1993). Advocates of empowerment claim that employee empowerment helps firms to enthuse employees to take responsibility (Barbee and Bott, 1991). And ample literature on empowerment confirms that empowered workforce will lead to achieving a competitive advantage (Conger and Kanungo, 1988; Forrester, 2000; Quinn and Spreitzer, 1997; Sundbo, 1999; Thomas, 2000). Besides, emotional empowerment has been associated with various
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work outcomes such as job satisfaction, affective commitment and job performance (e.g. Koberg et al., 1999; Liden et al., 2000). contribute properly to the prediction of recognition practice. It is found that two questions namely In my work unit, supervisors use different tangible ways to recognize the employees effort (e.g. tickets for cultural events, foreign trip to have vacation etc.) and In my work unit, employees receive recognition in writing from their supervisors (e.g. memos) show that they are not consistent with the rest of the scales. Item-Total Correlations of these two questions are found to be 0.23 and 0.25 respectively, while all other items correlate at 0.48 or better. Thus, they are dropped. When these two questions have been included, the reliability coefficient, the Cornbachs Alpha has been found to be 0.67 which has been deemed weak. Exclusion of these questions improves the Cornbachs Alpha coefficient to 0.78 which is satisfactory according to Nunallys guidelines. Lastly, Item Analysis has been done for empowerment practice. Again, not all the designated questions have been found to have contributed adequately to the prediction of the empowerment practice variable. The question, Employees in my work unit are extensively involved in key decision-making (e.g. recruiting, technological investment) is seemed inconsistent with the rest of the questions. Item-Total Correlation of this question is found to be 0.32 where others are 0.67 or better. Initially, the reliability coefficient, the Cornbachs Alpha is found to be 0.78 which satisfies Nunallys guideline but after removal of the fourth question, the scale has become even more reliable as the Cornbachs Alpha goes up to 0.85. Average Inter Item Correlations (AIIC) within each group of questions are checked for multicolinearity. The AIIC of the questions used for prediction of affective commitment is found to be 0.50. Before removal of the non-conforming questions, the AIIC of all items for measuring recognition practice is found to be 0.29 which have gone up to 0.49 after the exclusion of these questions. For empowerment practice, AIIC is found to be 0.46 before removal of the fourth question. After removal of the question, it has gone up to 0.66. Thus, no multicolinearity problem within each group of items is detected as no AIIC is found large enough. Later, a confirmatory factor analysis is conducted to confirm the validity of the scales. Remaining items to measure affective commitment, recognition practice and empowerment practice are entered into the factor analysis and three factors are forced. As shown in Table I, the factors have come out cleanly and all the retained items factor loading emerged above the cutoff point. To sum up, the reliability and construct validity of the measures are highly satisfactory. Table I: Confirmatory Factor Analysis Item AC REC EMP AC1 0.771 AC2 0.739 AC3 0.694 AC4 0.713 AC5 0.607 REC1 0.767 REC2 0.799 REC3 0.691 REC6 0.513 EMP1 0.796 EMP2 0.798 EMP3 0.846 Source: Field Study
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Research Model
The research model constructed for this study is depicted in Figure 1. The model comprises two Human Resources (HR) practices namely recognition practice and empowerment practice as the independent variables and affective commitment as the dependent variable. Figure 1: The Research Model
Recognition Practice (REC)
Affective Commitment (AC)

Empowerment Practice (EMP)

Figure 1: The Research Model

Hypotheses To Be Tested
In line with the proposed objectives of this study, the following hypotheses are developed in the context of Bangladesh:
Hypothesis 1 Hypothesis 2 : H1 : Recognition practice positively influences affective commitment. : H1 : Empowerment practice positively influences affective commitment.

Research Methodology
Sampling Strategy The study is based on survey data. To this end, a structured questionnaire has been prepared and the respondents have been asked to the queries by self-completing the questionnaire. Information has been received from a total of 194 respondents. Of the respondents, a total of 131 are male while 113 are married. That is, 67.53% of the respondents are male while 58.25% are married. The respondents represent 18 different organizations. These organizations have been selected randomly among which 11 are different financial institutions and 7 are non- financial institutions. The majority of the responses (a total of 110 responses i.e. 56.7%) are collected from the financial institutions Questionnaire Affective Commitment (AC) is measured by using a 5-item questionnaire developed by Meyer and Allen (1990). Recognition practice (REC) is measured by using a 6-item questionnaire adapted from Temblay et. al. (2000). Empowerment is measured by a 4-item scale adapted from Tremblay et al. (2000). Reliability and Construct Validity of the Questionnaire The analysis began with an examination of the measurement of the questionnaires in terms of their reliability and construct validity. To assess the internal consistency of the questions used for measuring affective commitment, recognition practice and empowerment practice, Reliability Analysis was done. The Item Analysis has been conducted to see whether all questions used for predicting affective commitment, recognition practice and empowerment practice contribute significantly as per a priori expectation. In Item Analysis, it is found that each question of the 5-item questionnaire set used for predicting affective commitment contributes to it properly. In Reliability Analysis, the Cronbachs Alpha is calculated which is found to be 0.83. This composite reliability coefficient satisfies Nunallys (1978) guideline. In case of recognition practice, the Item Analysis shows that not all the six questions do
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Human Resource
Sample Description Table II shows the mean, Standard Deviation and Standard Error of Mean of affective commitment (AC), recognition practice (REC) and empowerment practice (EMP). A relatively small standard Error of means for all variables, ranging from 0.06 to 0.08, indicate the sample mean of different variables are close to the population means. Table II: Descriptive Statistics and Pearson Product Moment Correlation
Mean AC REC EMP 3.90 3.76 3.21 Std. Deviation 0.84 0.90 1.12 Std. Error of Mean 0.06 0.06 0.08 0.491* 0.388* 0.444* AC REC

ANOVA
F = 36.592; df = 2, 191; p < 0.001 Predictors: (Constant), REC, EMP

Model Summary R = 0.526 R Squared = 0.277 Adjusted R Squared = 0.269

Dependent Variable: AC Source: Field Study

* All correlations are significant at the 0.001 (2-tailed) Source: Field Study

Table II also shows the correlations among different independent variables which are found to be statistically significant (? = 0.001) though they range from weak to moderate level. The degree of strength of correlations further proves that multicolinearity is not a problem. Table III shows partial correlations among different variables holding others constant. It is found that statistically significant partial correlations exist between affective commitment and recognition practice; between affective commitment and empowerment practice and between recognition practice and empowerment practice. But the strength of correlations is in between weak to moderate though the correlation coefficients are significant at 0.001 level and 0.01 level, respectively. Table III: Partial Correlations between variables AC REC EMP ** ? = 0.001; * ? = 0.01 Source: Field Study 0.386** 0.217 * 0.316** REC

Table IV also shows that recognition practice and empowerment practice are both capable of influencing affective commitment. For recognition practice, the value of t is 5.786 [ = 0.001, df = 189] and for empowerment practice, the value of t is 3.076 [ = 0.01, df = 189]. Thus, we accept Hypothesis 1 and Hypothesis 2. The p-value for recognition practice is 0.000 and for empowerment practice is 0.002 which indicates that the null hypotheses are unlikely to be true. It can be concluded that recognition practice affect affective commitment positively and estimation of the affective commitment can be done using recognition practice. It can also be concluded that empowerment practice affects affective commitment positively and empowerment practice can be used for estimation of affective commitment. From Table IV, it is also visible that these independent variables explain as much as 27.7% of the variation in affective commitment. Examination of Mediating Role of Recognition and Empowerment Practice We are also interested to know whether recognition practice and empowerment practice play any mediating role for each other towards affective commitment. To judge this, we have taken the suggestion proposed by Barron and Kenny (1986). According to Barron and Kenny (1986), mediation is there if four conditions are fulfilled. First, the independent variable must affect the mediator in the first model; second, the independent variable must affect the dependent variable in the second model; third, the mediator must affect the dependent variable in the third model where the said mediating independent variable is also included; and fourth, when all these conditions are held true, the effect of independent variable on the dependent variable in the third model must be less than the effect of independent variable on the dependent variable in the second model. If the inclusion of mediating variable in Model 3 reduces the beta coefficient of independent variable near to zero, then it is said that the mediating variable perfectly mediates the relationship. Table V: Regression for Empowerment Practice as a Mediator for Recognition Practice over Effective Commitment (Controlling Age, Gender, Marital Status)
Model Dependent Variable 1 Empowerment Practice 2 Effective Commitment Effective Commitment Independent Variable Recognition Practice Recognition Practice Recognition Practice Empowerment Practice

Analysis
Effect of Recognition and Empowerment Practice over Affective Commitment Table IV shows, whether independent variables, recognition practice and empowerment practice are capable of influencing the dependent variable affective Commitment. The computed value of F is 36.592 that falls in the rejection area at ? = 0.001 [df = (2, 191)]. Thus, it can be inferred that at least one of the independent variables has the ability to explain the variation in affective commitment. The p-value, which is 0.000, also demonstrates high probability of at least one of the variables to be capable of influencing affective commitment. Table IV: Regression of Recognition and Empowerment Practice on Affective Commitment Variables REC EMP Standardized 0.397 0.211 t 5.786 3.076 p 0.000 0.002

Standardized

Adj R2

Sig.

0.444 0.491 0.397 0.211 0.193 47.17 0.00

0.237

61.03

0.00

0.269

36.59

0.00

p = 0.001, p = 0.005

Source: Field Study

35

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Human Resource
The result of the analysis of the three-step process to ascertain the mediating role of empowerment practice in between recognition practice and effective commitment is presented in Table V. As can be seen in the table, recognition practice has statistically significant positive influence over empowerment practice ( = 0.444, p = 0.000) in Model 1; over effective commitment ( = 0.491, p = 0.000) in Model 2. Model 3 (which is reproduced in Table V) shows that both recognition practice and empowerment practice remain statistically significant (for recognition practice, = 0.397, p = 0.000; for empowerment practice, = 0.211, p = 0.002) when regressed over affective commitment. Thus, it is evident that the value coefficient of recognition practice over effective commitment is reduced as empowerment practice is added (from 0.491 to 0.397) thereby satisfying the fourth condition. Thus, it is accepted that empowerment practice partially mediates the influence of recognition practice over effective commitment. A similar analysis is done taking recognition practice as mediator for empowerment practice which is shown in Table VI. In Model 1, empowerment practice has statistically significant positive influence over recognition practice ( = 0.444, p = 0.000), in Model 2, over effective commitment ( = 0.388, p = 0.000). Like the earlier one, Model 3 shows that both recognition practice and empowerment practice have statistically significant influence on effective commitment. A comparison between Model 2 and Model 3 reveals that the effect of empowerment practice over effective commitment is reduced with the inclusion of recognition practice, from = 0.388 to = 0.211 though remains statistically significant, which fulfils the fourth condition. Thereby, it can be concluded that recognition practice also mediates the influence of empowerment practice over effective commitment. Table VI: Regression for Recognition Practice as a Mediator for Empowerment Practice over Effective Commitment (Controlling Age, Gender, Marital Status)
Model Dependent Variable Recognition Practice 2 Effective Commitment Effective Commitment Independent Variable Empowerment Practice Empowerment Practice Recognition Practice Empowerment Practice
p = 0.001, p = 0.005

Recognition Practice (REC) Affective Commitment (AC) Empowerment Practice (EMP)

Figure 2: The Revised Model

The positive impact of recognition practice over affective commitment may be explained in several ways. First, if suggestions given by employees are taken seriously in an organization and if they are appreciated for their good suggestions as well as good performances, employees start feeling a sense of belonging to the organization. If supervisors acknowledge the contribution of the employees through tangible ways such as by sending memos or by appreciating publicly, employees sense that they are essential to the organization. Along with this, if there is an environment where colleagues always come up with admiration, respect and positive acceptance for good work, an encouraging emotional state emerges within the employees. Second, recognition sends a positive signal to the employees in terms of their acceptance to the organization. They consider themselves as being part of the strategic assets of the organization. This also raises an emotional bondage to the organization. Third, rewarding with immediate recognition is likely to encourage repetition their good performances in the future. It is also found that the effect of recognition practice is mediated by empowerment practice. Recognition allows employees to be identified by everyone. This permits an employee to get nearer to the power circle and also be accepted by the colleagues. The process empowers an employee informally as it may be called. This informal empowerment facilitates the employee to become more able in initiating and implementing changes that raises a sense of accomplishment within the employee which results in his/her satisfaction and in turn increases affective commitment further. On the other hand, it is evident that empowerment practice also raises affective commitment. First, employees in todays organizations sometimes have better knowledge as well as better problem-solving skills related to his or her particular job area than their supervisors. Employees want their skills and knowledge to be applied to their fields of expertise. An opportunity to apply their skills enhances their intrinsic motivation. Second, if employees are given enough latitude over their work, they become self-controlled and more cautious about the consequences of their activities. They develop better goals, plans and policies. Not only that they also implement them with least resistance. All this ultimately helps them to better achieve their goal that in turn is transformed into a sense of accomplishment. This intrinsic motivation later translates into affective commitment. It is also found that recognition practice mediates the influence of empowerment practice over affective commitment. The reason may be that formal empowerment enables the workers to apply their skills and abilities toward setting better goals and improved means to achieve them. It also allows someone to implement his or her desired plan of actions with less resistance. Thus, empowerment strengthens opportunities for employees to perform better and to be recognized. Besides, empowerment indirectly enforces subtle but strong demand over employees to work for achievement of goals. Thus, success follows mostly and recognition comes by. This study is important for a number of reasons. First, it indicates, as
The Cost and Management, November-December, 2011

Standardized

Adj R2

Sig.

0.444 0.388 0.397 0.211 0.193 47.17 0.00

0.146

33.96

0.00

0.269

36.59

0.00

Source: Field Study

Conclusion
This paper has examined the effect of recognition and empowerment practice over affective commitment in the context of Bangladesh. In addition, the study also examined the mediating role of the selected HR practices over each other. The statistical analysis of the data confirms the model as shown in Figure 2. It seems that both recognition practice and empowerment practice have direct as well as indirect effects over affective commitment. It is also found that affective commitment increases with the increase in recognition and empowerment practice in the organization.
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Human Resource
expected, the positive effect of recognition and empowerment practice over affective commitment. Second, it also suggests that recognition practice and empowerment practice mediate one another toward affective commitment. Third, it identifies two types of empowerment: formal and informal. Formal is well known and delegated by the authority. In case of informal empowerment, on the other hand, power is earned by an employee in an intangible manner, which largely depends on the acceptance by other members of the organization. Reference
Agarwal, R. and T.W. Ferratt (1999), Coping With Labor Scarcity in IT: Strategies and Practices for Effective Recruitment and Retention, Cincinnati, OH: Pinnaflex. Allen, N. and J. Meyer (1990). "The Measurement and Antecedents of Affective, Normative and Continuance Commitment to the Organization", Journal of Occupational Psychology, Vol. 63, pp. 1-18. Argyris, C. (1994), "Good Communication that Blocks Learning", Harvard Business Review, July/August, pp. 77-85. Arnett, K. P., and T. L. Obert (1995), "What IS Employees Really Want", Datamation, Vol. 41, No. 5, p. 84. Barbee, C. and V. Bott (1991), "Customer Treatment as a Mirror of Employee Treatment", Advanced Management Journal, Vol. 56, No. 1, p. 27-32. Baruch, Y. (1998), "The Rise and Fall of Organization Commitment", Human Systems Management, Vol. 17, No. 2, pp. 135-44. Beck, K. and C. 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Insurance Managerial Performance of Insurance Companies in BangladeshDr. Md. Sayaduzzaman * Md. Abu Bakar Siddique **
Abstract: The objective of the study is to focus the managerial performance of the insurance companies in Bangladesh. The analysis of the managerial performance of selected insurance companies based on certain selected indicators (GP, NP, NR, OP, NC, ME, EPS, SE) reveals that management performance has consistently increased from 2004 -2008. Profitability indicator of managerial performance like gross premium, net premium, net revenue and earning per share have shown an increasing trend. On the other hand outstanding premium, net claim paid, management expenses have shown decreasing trend. Individually management of BGIC & PIC has shown excellent performance. It is evident from above that managerial performance of insurance companies in Bangladesh are not only satisfactory level but also remarkable. Keyword: Insurance Companies, Managerial Performance, Premium ratio, Insurance business, profit ratio.

1. Introduction
Managerial performance defined as a subjective measure of how well a firm can use assets from its primary mode of business and generate revenues. Financial performance is also used as a general measure of a firm's overall financial health over a given period of time, and can be used to compare similar firms across the same industry or to compare industries or sectors in aggregation. The most common measurement of "performance" is profit. The main objective of any business is to earn maximum possible profits with minimum expenses. In this view manager of a firm always tries to expand its business, increase its operating income and reduce operating expenses. There are many different ways to measure managerial performance, such as, revenue from operations, investment income, financial growth of business, satisfaction of employees etc. To measure managerial performance it is necessary and important to understand the answer of the following questions; i) how much the company has earned this year? ii) how much was the companys earnings during the last year? iii) is the business improving? The aim of the study is to seek the financial growth of insurance companies that measures managerial performance considering past performance, future performance and comparative performance between similar firms. Managerial performance of a company is very essential to management as it is an outcome which has been achieved by an individual or a group of individuals in an organization related to its authority and responsibility in achieving the goal legally, not against the law, and conforming to the morale and ethic. Performance is the function of the ability of an organization to gain and manage the resources in several different ways to develop competitive advantage. There are two kinds of performance, financial performance and non-financial performance (Hansen 2005). Financial performance emphasizes on variables related directly to financial report. Company's performance is evaluated in three dimensions. The first dimension is company's productivity, or processing input into output efficiently. The second is profitability dimension, or the level
* Dr. Md. Sayaduzzaman, Associate Professor, Department of Accounting and Information Systems, University of Rajshahi, Rajshahi -6205, Bangladesh ** Mr. Md. Abu Bakar Siddique, Assistant Professor (Accounting), Department of Humanities, Rajshahi University of Engineering & Technology, Rajshahi , Bangladesh.

of which company's earning is bigger than its cost. The third dimension is market premium, or the level of which company's market value is exceeding its book value (Walker, 2001).

2. Rationale of the study

In Bangladesh the insurance industries is almost 4 decade old. Insurance sectors were nationalized by the Government of Bangladesh just after liberation and forming two insurance companies Jibon Bima Corporation and Shadharan Bima Corporation. In Bangladesh, financial reporting of the companies is regulated by the Companies Act 1994, the Insurance Companies Act 1938 (at present the insurance companies Act 2008), Securities and Exchange Rules 1987, and International Accounting Standard adopted in Bangladesh. Insurance business in Bangladesh comprises two sectors viz. public sector and private sector. In public sector we have Sadharan Bima Corporation and Jiban Bima Corporation. In the private sector, insurance companies have been functioning, since 1983. However the growth in the insurance sector was neither remarkable nor encouraging. Initially the nationalized insurance companies were incurring huge loss (A.Barua et.al. 2000). The users analyze the financial statement to take various decisions. Financial reporting includes explanations and interpretations to help users understand financial information provided, for example, the usefulness of financial information as an aid to investors, creditors and others in forming expectations about a business enterprise may be enhanced by management explanations of the information. A total of 62 insurance companies have been operating in Bangladesh, of which 18 provide life insurance and 44 are in the general insurance field. In our country we find many important research works in the field of performance evaluation of the Public Limited Companies in Bangladesh. There are very few studies in the context of performance evaluation of insurance companies. The role of private insurance companies for the development of business environment in Bangladesh is very much important. Continuous efforts have been going on for the establishment of more and more private insurance companies in Bangladesh. The researchers have looked at the prospects of insurance business and have selected this topic. Once this study is completed it may assist the various interest groups of insurance business in Bangladesh.
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Insurance
3. Objectives of the Study
The objective of the study is to evaluate managerial performance of insurance companies in Bangladesh showing the financial growth of insurance sector. The specific objectives are: i. To examine the financial performance of selected insurance companies in Bangladesh. ii. To show the managerial performance trends of selected insurance companies. iii. T o evaluate managerial performance and compare with similar firms.

5. Methodology of the Study

The study is based on the financial statements and operational information of the sample insurance companies, which has been collected by visiting the head office of the companies personally by the researchers. Mainly insurance journals and annual reports of insurance companies have been used in measuring the different parameters of managerial performance. Statistical measure like mean and correlation have been used to analyze the managerial performance of selected companies. In order to accomplish a meaningful representation, the present study has examined the annual reports of 5 insurance companies out of 31 enlisted in Dhaka Stock Exchange Ltd. for the 5 years period (2004 to 2008). The sample insurance companies are selected by using judgmental sampling approach. The name of the sample insurance companies is as follows: Bangladesh General Insurance Company (BGIC), Progressive life Insurance Company (PLIC), Prime Insurance Company (PIC), United Insurance Company (UIC) and Central Insurance Company (CIC).

4. Prior Research Review

M.A. Hye & M. A. Rahman (1997), had an study on "Performance of Selected Private Sector General Insurance Companies in Bangladesh". The objectives of the study were to assess the performance of selected private sector general insurance companies in Bangladesh. The Performance of insurance companies were analyzed under the heads net premium, net claims paid, net profits position, composition of assets, net claims net premium ratio and net profit to net premium ratio of the sample companies. The study showed that the private sector insurance Table 1 companies have made substantial progress. Name of the 2004 Companies A.Barua et.al. (2000), in their study to measure performance of the insurance companies, they considered premium, investment & investment income claim paid and profit as indicators. They showed that operating performance has consistently deteriorated throughout the 15 years (1983-1997). The study is limited from the sample selection. Only two companies' annual reports were used as a sample of the study.
BGIC PLIC P1C UIC CIC

6. Analysis & Results:

Gross Premium (million taka)
2005 2006 2007 2008 353.66 833.70 168.03 208.01 181.75 Average 292.588 488.94 145.19 164.148 151.956 Variance 2108.58 57458.2 276.42 917.46 774.76 SD 45.91 239.7 16.62 30.28 27.83 CV 0.156 0.490 0.114 0.184 0.183

231.42 275.28 285.29 317.29 209.00 338.90 474.70 588.40 154.55 131.47 127.66 144.24 130.18 149.44 153.06 180.05 108.18 158.72 145.00 166.13

Source: Annual Report of Insurance Companies

Roberts. V. (1998) had a study on "The Analysis of Organizational performance Utilizing Multivariate Analysis- A Literature Review". The use of a single ratio as a means of evaluating performance is common practice among financial analysis due in part to their simplicity and also the ease of calculation. However, this practice has been criticized on the ground that a single ratio cannot reflect every aspect of organizational performance.

It is found that researchers M.A. Hye & M. A. Rahman (1997), A.Barua et.al. (2000) used commonly the premium, investment & investment income claim paid and profit as indicators of measurement of performance levels. Elizabet and Eliot (2004) indicated that all financial performance measure as interest Net Premium (million taka) margin, return on assets, and capital adequacy Table 2 are positively correlated with customer service quality. Chien and Danw (2004) showed in their Name of the study that most of previous studies concerning Companies 2004 2005 2006 2007 2008 Average company performance evaluation focus merely BGIC 132.56 136.97 150.42 136.72 134.31 138.196 on operational efficiency and operational 207.96 338.45 473.93 588.05 832.91 488.26 effectiveness, which might directly influence PLIC the survival of a company. R. Kasturi (2006) PIC 93.69 72.66 73.37 89.44 99.28 85.688 focused on performance management system 66.69 77.53 77.19 90.96 95.36 81.546 in insurance sectors in general, based on the UIC principles of performance management in CIC 81.60 114.1 95.51 91.82 107:6 98.126 service organizations and argued that performance management is the key for Source: Annual Report of Insurance Companies success of organizations.
The Cost and Management, November-December, 2011

Gross premium is the main revenue source of insurance business, which is earned through direct underwriting. Table 1 shows the gross premium of selected insurance companies during the year 20042008. Collection of gross premium of BGIC, PLIC and UIC are remarkable, showed an increasing trend from 2004 to 2008. Gross premium collection rate of PIC is not at satisfactory level. Collection of gross premium CIC has shown an increasing trend except in the year 2006. Average gross premium of BGIC, PLIC, PIC, UIC and CIC are 292.59, 489.94, 145.19, 164.15 and 151.96 millions respectively. The standard deviation of PIC was

Variance 49.99 146.07 133.81 166.16

SD 7.07 12.08 11.56 12.89

CV 0.051 0.491 0.141 0.141 0.131

57489.5 239.76

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Insurance
lowest among the sample companies followed Table 5 by CIC. So, it can be concluded that the collection of gross premium was consistent in the Name of the Companies companies like PIC and CIC. Net Profit Before Tax (million taka)
2004 2005
26.53 n/a 18.35 33.18 25.81

2006
36.04 n/a 14.16 26.92 27.95

2007
52.99 n/a 27.99 32.03 30.31

2008 Average
63.05 n/a 25.66 373.18 46.41 40.952 n/a 14.138 98.778 29.674

Variance
271.11 304.75

SD
16.46 0 17.45

CV
0.402 1.234 1.553 0.352

Table 2 shows the net premium of selected BGIC 26.15 insurance companies during the year 2004-2008. PLIC n/a During the last 5 years collection of net premium (15.47) of BGIC and PLIC are remarkable, but all sample PIC companies showed an increasing trend from UIC 28.58 2004 to 2008. Net premium collection rate of PIC CIC 17.89 UIC and CIC are not at satisfactory level. Average net premium of BGIC, PLIC, PIC, UIC and CIC are 138.20, 488.26, 85.69, 81.55 and 98.13 millions respectively. The standard deviation of BGIC was lowest among the all sample companies followed by UIC. So, it can be concluded that the collection of net premium was consistent in the companies like BGIC and UIC. Table 3 BGIC
Year 2004 2005 2006 2007 2008 Average Variance SD CV OP 00.00 00.00 00.00 00.00 00.00 00 00 00 00

23536.5 153.42 109.31 10.455

Source: Annual Report of Insurance Companies

showed decreasing trend from 2004 to 2008. It bears a good sign for managerial performance. Average net claim paid by BGIC, PLIC, PIC, UIC and CIC are 26.33, 57.86, 41.35, 18.95 and 20.43 millions respectively. The standard deviation of BGIC, PIC and UIC were lower among the all sample companies. So, it can be concluded that the net claim paid of the companies BGIC, PIC and UIC was consistent. Table 5 shows the net profit before tax of selected insurance companies during the year 2004--2008. The net profit before tax of BGIC, PIC, UIC and CIC are remarkable, showed an increasing trend from 2004 to 2008. Average net profit before tax of BGIC, PIC, UIC and CIC are 40.95, 14.14, 98.78, and 29.67 millions respectively. The standard deviation of BGIC, PIC and CIC were lower among the all sample companies. So, it can be concluded that the collection of net profit before tax was consistent of the companies BGIC, PIC and CIC. Table-6
Year 2004 2005 2006 2007 2008 average variance SD CV

Outstanding Premium (million taka) PLIC

OP 21.65 38.43 83.25 108.84 129.87 76.408 2099.4 45.819 .05996

PLC
OP 51.02 64.51 74.40 62.38 57.20 61.902 75.939 8.71431 0.14077

UIC
OP 37.01 32.65 31.56 27.89 40.56 33.934 24.295 4.9289 0.145252

CIC
OP 28.28 19.81 9.50 00.00 00.00 11.518 154.780 12.44108 1.08014

Net Revenue (million taka)

BGIC 16.56 18.97 21.06 21.54 21.92 20.01 5.018 2.2402 0.1119 PLIC 73.48 85.85 114.5 218.8 375.61 173.64 16016.9 126.55 0.7288 PIC 14.49 18.28 8.08 3.17 1.96 3.40 141.37 11.890 3.4970 UIC 13.81 14.01 3.69 2.42 5.45 7.876 31.503 5.6128 0.7126 CIC 14.56 24.25 22.96 13.96 22.09 19.564 24.079 4.9070 0.25082

Source: Annual Report of Insurance Companies

Outstanding premium is the burden of insurance business. Table 3 shows the outstanding premium of selected insurance companies during the year 2004-2008. Outstanding premium of BGIC and CIC are remarkable, showed decreasing trend from 2004 to 2008. Outstanding premium PLIC has shown an increasing trend. Average outstanding premium of BGIC, PLIC, PIC, UIC and CIC are 00.00, 76.41, 61.90, 33.93 and 11.52 millions respectively. The standard deviation of BGIC is zero and PIC was lowest among all sample companies. So, it can be concluded that the rate of outstanding premium was consistent in the companies like BGIC, PIC and UIC. Table 4
Name of the Companies 2004

Net Claim Paid (million taka)

2005 2006 2007 2008 Average Variance SD

Source: Annual Report of Insurance Companies

Table 6 shows the net revenue of selected insurance companies during the year 2004-2008. Net revenue of BGIC and PLIC are remarkable, BGIC 23.70 19.85 18.14 .33.59 36.35 26.326 67.27 8.20 0.311 showed an increasing trend and rest of the PLIC 13.40 32.10 66.91 86.80 90.07 57.856 1149.2 33.90 0.585 companies showed decreasing trend from 2004 to 2008. The net revenue of PIC, UIC and CIC are PIC 29.51 52.03 46.30 33.90 45.02 41.352 86.93 9.32 0.225 not at satisfactory level. Average net revenue of UIC 13.87 12.82 22.44 21.28 24.32 18.946 27.45 5.239 0.276 BGIC, PLIC, PIC, UIC and CIC are 20.01, 173.64, 3.40, 7.88 and 19.56 millions respectively. The CIC 13.10 14.14 (4.06)* 25.24 29.22 20.425 64.56 11.48 0.562 standard deviation of BGIC, UIC and CIC were Source: Annual Report of Insurance Companies lower among the all sample companies. So, it can Table 4 focuses the net claims paid by the selected insurance be concluded that the collection of net revenue was consistent of the companies during the year 2004-2008. Net claim paid by all firms companies BGIC, UIC and CIC.
CV
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Insurance
Table-7
Name of the Companies
BGIC PLIC PIC UIC CIC

Earning Per Share (in Tk.)

2004
36.32 .06 n/a 23.58 11.38

2005
21.67 .06 11.57 23.68 12.24

2006
16.95 .08 8.44 22.92 9.40

2007
27.75 n/a 13.14 25.53 9.98

2008
27.5 10.85 13.58 313.18 15.73

Average Variance
26.038 2.7625 11.6825 81.778 11.746 53.114 29.070 5.4170

SD
7.287 4.83 5.599

CV
0.2798 1.748 0.479 1.582 0.212

PLIC, PIC and BGIC respectively but UIC had abnormal level of SD which is questionable. So, it can be concluded that the fluctuations of earning per share was consistent of the companies PLIC, PIC and CIC. Management expenses are very important in insurance business. Table 8 shows the management expenses of selected insurance companies during the year 2004-2008. Management expenses of all companies showed

16734.0 129.36 6.218 2.493

Source: Annual Report of Insurance Companies

Table 7 focuses the earning per share of selected insurance companies during the year 2004- 2008. Earning per share of PLIC, UIC

and CIC are remarkable, showed an increasing trend from 2004 to 2008. Earning per share of BGIC has shown Table 10 decreasing trend except in the year 2007 and 2008. Average earning per share of BGIC, PLIC, PIC, NR Pearson Correlation UIC and CIC are 26.04, 2.76, 11.68, 81.78 and 11.75 Sig. (2-tailed) millions respectively. The standard deviation of CIC NP Pearson Correlation was low among the all sample units followed by
Sig. (2-tailed)
Table 8
2004 2005 2006 2007 2008 average variance SD CV 122.49 132.65 107.25 85.43 95.63 108.69

decreasing trend except the company PLIC from 2004-2008. Rate of pay management expenses is at satisfactory level of PLIC. Average management expenses of BGIC PLIC, PIC, UIC and CIC are 108.69, 277.75, 48.87, 65.97, and 56.04 millions respectively. Management Correlations of the variables of PLIC
NR 1 . .957(*) .011 .010 890(*) .043 .815 .093 .042 .900(*) .037 .442 .456 NP .957(*) .011 1 . .000 .801 .103 .928(*) .023 .006 .003 .654 .232 GP 957(*) .010 1.00(**) .000 1 . .802 .103 .928(*) .023 .006 .003 .653 .232 EPS .890(*) .043 .801 .103 .802 .103 1 . .528 .360 .235 .791 .111 .249 .686 NC .815 .093 .023 .023 .528 .360 1 . .002 .035 .733 .159 OP .042 .006 .006 .650 .235 .002 1 . .018 .668 .218 ME .037 .003 .003 .791 .111 .035 .939(*) .018 1 . .732 .160 SE .442 .456 .654 .232 .653 .232 .249 .686 .733 .159 .668 .218 .732 .160 1 . .891(*) .900(*)

928(*) .969(**).980(**) .928(*) .969(**).980(**)

Management (million taka)

144.46 230.71 295.59 295.90 422.09 277.75 103.2 26.13 28.47 40.58 46.01 48.87 990.47 31.471 0.6438 65.07 68.38 71.38 62.01 62.65 65.97 16.16 4.021 0.060 62.07 66.72 76.58 42.00 32.65 56.04 329.14 18.14 0.323

GP EPS NC OP ME

Pearson Correlation Sig. (2-tailed) Pearson Correlation Sig. (2-tailed) Pearson Correlation Sig. (2-tailed) Pearson Correlation Sig. (2-tailed) Pearson Correlation Sig. (2-tailed)

.957(*) 1.000(**)

.987(**) .904(*)

.891(*) .969(**) .969(**) 980(**) .980(**)

.650 .987(**)

369.54 10365.18 19.223 0.1768 101.8 0.366

.904(*) .939(*)

SEPearson Correlation Sig. (2-tailed)

Source: Annual Report of Insurance Companies

Source: Annual Report of Insurance Companies

Table 9
NR NP GP Pearson Correlation Sig. (2-tailed) Pearson Correlation Sig. (2-tailed)

Correlations of the variables of BGIC

NR 1 . .377 .532 .913(*) .030 -.537 .351 .510 .380 .(a) . -.781 .119 .960(**) .010 NP .377 .532 1 . .002 .997 -.834 .079. -.547 .340 .(a) . -.073 .907 .169 .786 GP .913(*) .030 .002 .997 1 . -.266 .666 .746 .148 .(a) . -.742 .151 .980(**) .003 EPS -.537 .351 -.834 .079 -.266 .666 1 . .430 .470 .(a) . -.015 .980 -.447 .450 NC .510 .380 -.547 .340 .746 .148 .430 .470 1 . .(a) . -.760 .136 .610 .275 OP .(a) . .(a) . .(a) . .(a) . .(a) . .(a) . .(a) . .(a) . ME -.781 .119 -.073 .907 -.742 .151 -.015 .980 -.760 .136 .(a) . 1 . -.697 .191 SE .960(**) .010 .169 .786 .980(**) .003 -.447 .450 .610 .275 .(a) . -.697 .191 1 .

expenses have shown below of average in the year 2007 and 2008. The standard deviation of UIC and CIC were lower among the all units. So it can be concluded that the management of the companies UIC and CIC were most efficient. Table 9 indicates the correlation among the variables of the company BGIC. There is high degree of positive correlation among the variables GP & NR, and high degree of negative correlation between the variables like ME & GP and ME & NR. It is worth mentioning that the management expenses and claim paid are properly controlled by the management. So, it can be concluded that the managerial performance is at satisfactory level. Table 10 indicates the correlation among the variables of the company PLIC. There is high degree of positive correlation among the variables GP, NR, NP, EPS and ME. Other variables have shown insignificant

Pearson Correlation Sig. (2-tailed) EPS Pearson Correlation Sig. (2-tailed) NC Pearson Correlation Sig. (2-tailed) OP Pearson Correlation Sig. (2-tailed) ME Pearson Correlation Sig. (2-tailed) SEPearson Correlation Sig. (2-tailed)

Source: Annual Report of Insurance Companies

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Insurance
Table 11
NR NP GP EPS NC OP ME SE Pearson Correlation Sig. (2-tailed) Pearson Correlation Sig. (2-tailed) Pearson Correlation Sig. (2-tailed) Pearson Correlation Sig. (2-tailed) Pearson Correlation Sig. (2-tailed) Pearson Correlation

Correlations of the variables of PIC

NR 1 . -.722 NP -.722 .168 1 GP -.615 .270 966(**) .007 1 . -.024 .969 -.408 .495 -.802 .103 .535 .352 .487 .405 EPS .710 .179 -.077 .902 -.024 .969 1 . .561 .325 .400 .505 -.828 .084 .752 .142 NC OP ME .880(*) .721 -.935(*) .049 -.605 .279 -.408 .495 .561 .325 1 . .608 .276 -.797 .106 .323 .596 .170 -.800 .104 -.802 .103 .400 .505 .608 .276 1 . -.817 .092 .093 .881 .020 .600 .285 .535 .352 -.828 .084 -.797 .106 -.817 .092 1 . -.439 .459 SE .216 .727 .412 .491 .487 .405 .752 .142 .323 .596 .093 .881 -.439 .459 1 .

.168 . -.615 .966(**) .270 .710 .179 .880(*) .049 .721 .007 -.077 .902 -.605 .279 -.800 .104 .600 .285 .412 .491

Table 12 indicates the correlation among the variables of the company UIC. There is high degree of positive correlation among the variables like EPS & SE and GP & NP. There is also high degree of negative correlation between the variables like NC & NR, GP & ME and NP & ME. Here management expenses are also under control. So it can be concluded that the managerial performance is at satisfactory level but not remarkable. Table 13 indicates the correlation among the variables of the company CIC. There is also high degree of positive correlation between the variables NC & SE, and high degree of negative correlation between the variables like ME & NC, OP & NC, and OP & SE. Other variables have shown insignificant positive correlation between them. So, it can be concluded that the managerial performance is at satisfactory level but not remarkable.

Sig. (2-tailed) .170 Pearson Correlation -.935(*) Sig. (2-tailed) Pearson Correlation Sig. (2-tailed) .020 .216 .727

Source: Annual Report of Insurance Companies

mentioning management expenses are in under control. So, it can be concluded that the managerial performance is at satisfactory level but not remarkable

Conclusions:

The profit information is of prime attention in appraising the performance or responsibility of the management, and profit Table 11 indicates the correlation among the variables of the company information helps the owner of stake holders appraise the PIC. There is high degree of positive correlation among the variables GP company's profitability in the long run. In financial report, profit also & Table 11 indicates the correlation among the variables of the functions as parameter to evaluate management performance, so company PIC. There is high degree of positive correlation among the that the investors attention is only on profit information without paying attention on the procedure which is Table 12 Correlations of the variables of UIC applied by the company to produce profit. This concern urges managers in maximizing NR NP GP EPS NC OP ME SE the ratio of profitability. The analysis of the NR Pearson Correlation 1 -.691 -.645 -.244 -.919 (*) .336 .365 -.336 managerial performance of selected Sig. (2-tailed) . .196 .240 .692 .027 .580 .546 .581 insurance companies based on certain NP Pearson Correlation -.691 1 .976(**) .672 .747 .019 -.807 .745 selected indicators like GP, NP, NR, OP, NC, ME, Sig. (2-tailed) .196 . .005 .214 .147 .975 .099 .149 EPS, SE reveals that management performance has consistently increased GP Pearson Correlation -.645 .976(**) 1 .813 .782 .226 -.837 .870 during 2004-2008. Profitability indicators of Sig. (2-tailed) .240 .005 . .094 .118 .714 .077 .055 managerial performance like gross premium, N 5 5 5 5 5 5 5 5 net premium, net revenue and earning per EPS Pearson Correlation -.244 .672 .813 1 .575 .748 -.725 .994 (**) share have also shown an increasing trend on Sig. (2-tailed) .692 .214 .094 . .311 .146 .166 .001 the other hand outstanding premium, net NC Pearson Correlation -.919(*) .747 .782 .575 1 .053 -.481 .640 claim paid, management expenses have Sig. (2-tailed) .027 .147 .118 .311 . .933 .413 .245 shown decreasing trend. Managerial performance of BGIC and PIC are highly at OP Pearson Correlation .336 .019 .226 .748 .053 1 -.319 .675 satisfactory level. It is evident from above that Sig. (2-tailed) .580 .975 .714 .146 .933 . .601 .211 managerial performance of insurance ME Pearson Correlation .365 -.807 -.837 -.725 -.481 -.319 1 -.768 companies in Bangladesh are not only at Sig. (2-tailed) .546 .099 .077 .166 .413 .601 . .129 satisfactory level but also remarkable.
SE Pearson Correlation Sig. (2-tailed) -.336 .581 .745 .870 .994(**) .640 .001 .245 .675 -.768 .129 1 . .149 .055 .211

Source: Annual Report of Insurance Companies

variables GP & NP, and high degree of negative correlation between the variables like ME & NR and ME & EPS. Other variables are insignificantly correlated. It is worth mentioning that management expenses are in under control. So, it can be concluded that the managerial performance is at satisfactory level and remarkable.
42

Abbreviation: NR = Net Revenue, NP = Net Premium, GP = Gross Premium, OP = Outstanding Premium, NC = Net Claim Paid, ME = Management Expenses, EPS = Earning Per Share, SE = Shareholder's Equity.

The Cost and Management, November-December, 2011

Insurance
Table 13
NR NP GP

Correlations of the variables of CIC

NR NP .822 .088 1 . .726 .165 5 .537 .351 .207 GP .408 .495 .726 .165 1 . 5 .459 .437 .793 .207 -.845 .072 -.609 .275 .780 .119 EPS .337 .579 .537 .351 .459 .437 5 1 . .431 .569 -.176 .777 -.618 .267 .400 .505 NC .019 .981 .207 .793 .793 .207 5 .431 .569 1 . -.962(*) .038 -.985(*) OP -.067 .914 -.274 .656 -.845 .072 5 -.176 ME .307 .616 -.124 .843 -.609 .275 5 -.618 SE .047 .940 .217 .726 .780 .119 5 .400 1 . .822 .088 .408 .495 5 .337 .579 .019

Vol. 13, pp. 137-160. 2. Barua A., Mamun M. & Islam N. (2000), Performance of the Nationalized General Insurance Company of Bangladesh", Bank Parikrama, Vol. XXV, No.4, pp. 2638. 3. Roberts. K.V., (1998)," The Analysis of Organizational Performance Utilizing Multivariate Analysis- A Literature Review" Journal of Business Administration, Institute of Business Administration, Dhaka university Vol. 24, No.3&4. 4. Kasturi (2006), "Performance Management in Insurance Corporation" Journal of Business Administration Online, Spring, Vol. 5 (1). 5. Elizabet D. and Eliot (2004), "Efficiency Customer Service and Financial Performance Among Australian Financial Institutions", International Journal of Bank Marketing, Vol. 22(5), pp- 319-342. 6. Chien and Danw (2004), "Performance Measurement of Taiwan Commercial Banks", International Journal of Productivity and Performance Management, Vol.3(5) pp-425-434. 7. Hansen, D. R., and Maryanne M. M., (2005), Management Accounting. 7th Edition, Singapore: South-Western, a Division of Thomson Learning Inc.

Pearson Correlation Sig. (2-tailed) Pearson Correlation Sig. (2-tailed) Pearson Correlation Sig. (2-tailed) N Pearson Correlation Sig. (2-tailed) Pearson Correlation Sig. (2-tailed) Pearson Correlation Sig. (2-tailed) Pearson Correlation Sig. (2-tailed) Pearson Correlation Sig. (2-tailed)

EPS NC OP ME SE

.777 .267 .505 -.962(*) -985(*) .999(**) .038 1 . .642 .015 .642 .243 1 . -.756 .139 .001 -.946(*) .015 -.756 .139 1 .

.981 .793 -.067 -.274 .914 .307 .616 .047 .940 .656 -.124 .843 .217 .726

.015 .243 .999(**) -.946(*) .001 .015

Source: Annual Report of Insurance Companies

Reference:
1. Hye M. A. & Rahamn M. A. (1997), "Performance of Selected Private Sector General Insurance Companies in Bangladesh", Chittagong University Studies (Commerce),

8. Walker, and Charles D., (2001), Exploring the Human Capital Contribution to Productivity, Profitability and the Market Evaluation of the Firm. (Web site).

[ From page-27 ] Prospect of Forensic Accounting In Bangladesh

Money laundering is a problem in Bangladesh. Much of the economy is cash-based, which means that many transactions bypass regulated financial institutions. The popular attractiveness of the hawala, or hundi, network has been increased by tight restrictions on currency transfers imposed by the government. Corruption is a major concern in Bangladesh and is responsible in part for the large role that the country plays in regional smuggling. Much of the smuggling is undertaken for purposes of tax avoidance, but arms and drugs are also smuggled through the country. Funds from these operations tend to be laundered via the financial markets.
Covaleski, J.M. (2003). Many top growth areas resolve around synergy of CPA/ attorney relationship. Accounting Today. March 18-7:1. Crumbley, D.L. (2001). Forensic Accounting: Older Than You Think. Journal of Forensic Accounting. Vol. ll, pp 181 202. Crumbley. D.L. and Apostolou, N. (2002). Forensic Accounting: A New Growth Area in Accounting. Ohio CPA Journal, July September. Grippo, F.J. and Ibex, J.W. (2003). Introduction to Forensic Accounting. The National Public Accountant, Washington, pp 4. Harris, C.K. and Brown, A.M. (2000). The Qualities of a Forensic Accountant. Pennsylvania CPA Journal. Vol. 71 (Spring), No. 1, pp. 6-7. Messmer, M. (2004). The Forensic Accountant: The Sherlock Holmes of the Accounting World. Business Credit, New York, Vol. 106, 2: pp. 50 51. Peloubet, M.E. (1946). Forensic Accounting: Its Place in Todays Economy. Journal of Accountancy, Vol. 81, No. 6, pp. 458 462. Crumbley, D. Larry; Lester E. Heitger, G. Stevenson Smith (2005-08-05). Forensic and Investigative Accounting. CCH Group. ISBN 0808013653. Cicchella, Denise (2005). Construction audit guide : overview, monitoring, and auditing. Altamonte Springs, FL: IIA Research Foundation. ISBN 0894135872. Smith, Russell L. Parr, Gordon V. (2010). Intellectual property : valuation, exploitation, and infringement damages.. Hoboken, N.J.: Wiley. pp. Chapter 33. ISBN 0470457031. Nigrini, Mark (June, 2011). "Forensic Analytics: Methods and Techniques for Forensic Accounting Investigations". Hoboken, NJ: John Wiley & Sons Inc.. ISBN 978-0-47089046-2. http://www.wiley.com/WileyCDA/WileyTitle/productCd0470890460.html.

Conclusion
Forensic accounting has been in existence since ancient times but corporate scandals of late had given the profession rejuvenation. In Bangladesh, forensic accounting is still seemed to assume that there is no difference between forensic accounting and auditing. From the study, it can be concluded that there is need for a specific act or guidelines to govern and regulate forensic accounting practices in Bangladesh. References:
Bernama.com (2004) Forensic Accounting Experts To Tackle White-Collar Crimes [WWW]<URL:http://www.bernama.com/bernama/v3/news_lite.php?id=105971> [assessed June 21, 2005]. Bologna, G.J. and Lindquist R.J. (1987). Fraud Auditing and Forensic Accounting: New Tools and Techniques. Hoboken, New Jersey: Wiley Publishers.

The Cost and Management, November-December, 2011

43

Feature

Gender Equality a crying need

Ruhul Ameen, FCMA *

Why woman in our society are more or less dependent on men ? Because men are in most cases get educated and enter into income generating activities. Though Islam empowers equal right to both men and women but in practice it is not observed because most women do not enter into income generating activities according to their ability. If they were earner they would not be under nourished under privileged and dependent on men in our society. Until they are married they are under their parents, at youth they are under their husband and when they are old and widow they have to look for help towards their children. This happens because most women are not financially independent They are not equally treated in sharing food, education and wealth by the parents. We are talking about gender equality but for that we need our women to have equal access in every facilities specially in education Grameen Bank concept of developing women entrepreneurship is a burning example of portraying women in economic activities. In line with Grameen Bank , BRAC Bank and many NGOs are promoting women entrepreneurship by financing SMEs (Small and medium enterprises) run by women. Now it is a crying need of the day to promote women owned SMEs through specialized women Bank to provide finance without collateral security but with special monitoring support. Austrias first bank for women was opened by Raiffeisen in the ski resort town of Gastein. The concept was developed in association with Emotion Banking, which conducted extensive studies about women and finances and how they interact with banks. Emotion Banking came to the conclusion that women approach finances differently than men do, and that a dedicated bank for women would better serve Raiffisens female customers. The current setup includes an inviting lounge-like interior that includes a play area to keep children occupied. Female employees assist customers, taking extra time to explain products thoroughly and to build a strong relationship with their customers. The concept might be a first in Austria, but isnt altogether new on an international scale. From Citigroups Women & Co., which we covered a few years ago, to the Royal Bank of Canada, many financial institutions are recognizing that women often have their
* Mr. Ruhul Ameen, FCMA is a former Vice President of ICMAB and life member of Bangladesh Economic Association and Deputy Managing Director, Excelsior shoes Ltd.

own needs and goals when it comes to money and finances. And this segmented market is continuously evolving; according to a recent report by research firm Aite Group, Highly-educated women leaving the U.S. workforce to raise children are creating a new, highly lucrative consumer segment for financial firms. The market, which the group dubbed Ivy League Moms is sized at roughly USD 10 million households with ingestible assets of USD 6.5 trillion in the United States of America. Leading the way are banks for women in Islamic countries. Micro credit providers like Grameen Bank have long placed special emphasis on providing loans to women. In Pakistan, First Women Bank was founded in 1989 and strives for the economic empowerment of women. Saudi Arabian women, although not allowed to vote or drive, have the right to control their own finances, and Saudi banks have been devoting extensive resources to ladies banking over the past few years, with separate entrances, distinct product offering and a staff deputed entirely for women. Meanwhile, Bahrain announced its own first bank for women in the Gulf region. The Masafy Bank has been granted a license to start the first Islamic investment bank for women, aimed at targeting high net worth women across the Gulf region. The venture could be lucrative, as studies by Backer, Abu Dhabi Investment House show that women in the region have funds worth USD 38 billion, with no credible investment avenues for investment those funds in a private and professional manner. What we need for our women to have gender equality ? First of all the parents attitude to a female child should be same as a male child. If the parents change their attitude they will provide equal facilities to both male and female child. Both male and female child will be brought up in the society with equal treatment. This will reduce gender inequality in the society at large. The women will not require quota for job, seats in the parliament and all possible arena of leadership can be available to our women. Women should also have equal rights of sharing parental properties because they are physically vulnerable compared to men.

44

The Cost and Management, November-December, 2011

ICMAB News

ICMAB Best Corporate Award-2011

The Institute of Cost and Management Accountants of Bangladesh (ICMAB) introduced ICMAB Best Corporate Award in 2007 with a view to creating competition among the national institutions to march forward to achieve a place where these corporate can be compared with similar global international organizations and encouraging the corporate world to act more responsibly and publish informative and transparent reports. Like previous year this year the Institute also selected best corporate houses in five sectors viz Banking, Non-banking Financial Institutions, Insurance, Pharmaceuticals and Telecommunication sectors. ICMAB Best Corporate Award-2011 was given to the winners in a ceremonial function held on 12th December, 2011 at Pan Pacific Sonargaon Hotel, Dhaka. Mr. Abul Mal Abdul Muhit, Honble Finance Minister was present as Chief Guest and distributed the award among the winners. The President of the Institute Mr. Zahir Uddin Ahmed, FCMA, Chairman, BCA selection Committee Mr. Muzaffar Ahmed, FCMA spoke on the occasion while Mr. Md Jasim Uddin Akond, FCMA, Secretary of the Institute offered vote of thanks. Beside, the representatives of the winning organizations also expressed their views and thanked the ICMAB authority for taking such type of step. Award winners were as follows: Banking Sector: Nationalized Bank/Government owned Public Bank: Janata Bank Limited First, Agrani Bank Limited Second and Rupali Bank Limited Third. Private Commercial Bank: Prime Bank Limited First, National Bank Limited Second and Eastern Bank Limited Third. Foreign Commercial Bank: Standard Chartered Bank First, HSBC Limited Second and Commercial Bank of Ceylon PLC Third. Private Commercial Banks-Islamic Operation: Islami Bank Bangladesh Limited First, Export Import Bank of Bangladesh Limited Second and Shahjalaj Islami Bank Limited Third. Non-Banking Financial Institution Sector: IDLC Finance Limited First, LankaBangla Finance Limited Second and Prime Finance and Investment Limited Third. Insurance Sector: Green Delta Insurance Company Limited First, Reliance Insurance Limited Second and Pioneer Insurance Company Limited Third. Pharmaceutical Sector: Square Pharmaceuticals Limited First, Beximco Pharmaceuticals Limited Second and GlaxoSmithKline Bangladesh Limited Third. Telecommunication sector: Grameenphone Limited First and ORASCOM Telecom Banladesh Limited Second.
The Cost and Management, November-December, 2011 45

ICMAB News

High dignitaries of the Government, Semi-Government and Sector Corporations, key members of the Trade and Industries community, representatives of Bank, Insurance, other financial institution, Pharmaceuticals, Telecommunications and a large number of members of accounting profession attended the Occasion.
46 The Cost and Management, November-December, 2011

ICMAB News

Workshop on IFRS

The Institute organized a workshop on IFRS held on November 19, 2011 at ICMAB Seminar Room, ICMA Bhan, Dhaka. Mr. Satipati Moitra, Past President, ICMAB and Mr. Mainul Huda, Financial Controller, Augere Wireless Broadband Bangladesh Ltd. presented the papers on IAS-38 : Intangible Assets and IAS-12 :Income Taxes as resource persons respectively.

ICMAB delegate attended the Board of NIPA Annual Conference 2011 in Samara, Russia Past president and present Vice President of the Institute Mr. A.K.M. Delwer Hussain, FCMA attended as Guest Speaker of the Board of National Institute of Professional Accountants, Financial Managers and Economists (NIPA) Annual Conference 2011 held on November 17-18, 2011, Samara, Russia. ICMAB delegates attended the IFAC Council meeting in Berlin, Germany

IAS IAS

Mr. M. Abul Kalam Mazumdar, FCMA, Past President and Chairman, the Cost Accounting and Financial Reporting Standards Committee of the Institute Chaired the technical sessions.

IAS IAS

Among others Mr. Jamal Ahmed Chudhury, FCMA of the Institute offered vote of thanks. A good number of Members of the Institute participated in the Workshop Program. Members present in the workshop were granted 3(three) credit hours for participation in the CPD.
The Cost and Management, November-December, 2011

A 2-member delegation of the ICMAB headed by its president Mr. Zahir Uddin Ahmed, FCA, FCMA attended the IFAC Council meeting held on November 16-17, 2011 at the Grand Hotel Esplanade in Berlin, Germany hosted by IDW and WPK. Other member of the
47

ICMAB News
delegation was the Secretary Mr. Md. Jasim Uddin Akond, FCMA. Eminent Accounting professionals from all over the world participated in the above program. Mr. Ghulam Muhammed Quader MP, Honourable Minister, Ministry of Commerce, Government of the Peoples Republic of Bangladesh, was present as Chief Guest. Mr. Md. Munirul Islam,FCMA, Chairman of Dhaka Branch Council presided over the program. Mr. G.M. Omar Faruque Chowdhury FCMA, Chairman, Dhaka Branch Seminar & Conference Committee gave the address of welcome. Mr. Munir in his speech emphasized on role of CMA in the context of present global economy and competitive business environment. The Chief Guest GM Quader in his speech appraised the role of Cost and Management Accountants for the economic development of the country. He advised the members to peruse the CMA education with dedication and sincerity. Among others Institutes President Mr. Zahir Uddin Ahmed FCMA, Md. Ali Haider Chowdhury FCMA, Secretary of DBC spoke in the program. DBC Vice Chairman Mr. Jayanta Kumar Podder, FCMA offered vote of thanks. A large number of members of the Institute, high officials of the Government, semi-Government, Corporations, Multinationals and local companies, leading business personalities and social elites were present in the program.

DBC News
DBCs Seminar on Winning the Interview

DBC of the Institute organized Seminar on Winning the Interview for senior students of ICMAB on November 26, 2011 at ICMAB Ruhul Quddus Auditorium, Nilkhet, Dhaka. Kazi Rakibuddin Ahmed, Director of Human Resources and Administration of Best Air Conduct the session. The Discussion Session was presided over by DBC Chairman, Mr. Md. Munirul Islam, FCMA. A good number of Senior students of the Institute were present in the discussion session. DBC Fellowship Night-2011

CBC News
CBC Fellowship Night-2011

The Chittagong Branch Council (CBC) of the Institute of Cost and Management Accountants of Bangladesh has celebrated CBC Fellowship Night 2011, which was held on December 23, 2011 at Hotel Agrabad, Chittagong. Mr. Mohammed Salim, FCMA, VicePresident of ICMAB was present as Chief Guest while Mr. Md. Jasim Uddin Akond, FCMA, Secretary of the Institute attended the program as special guest. Mr. M. Mahfuzul Hoque,FCMA Chairman, Chittagong BranchCouncil presided over the function and expressed his heartfelt gratitude to the distinguished National Council Members and the other honorable Members of the Institute for attending the function. Mr. Mohammed Nazmul Hoque FCMA, Secretary of CBC nicely conducted the program and stated briefly CBC activities of 2011. A good number of Fellow & Associate members of Dhaka & Chittagong of the Institute along with their spouses and children attended the function. The function was concluded with a colorful cultural function. Renowned artists of the country and Local artists of Chittagong were participated in the cultural function. A wonderful raffle draw and a delicious fellowship dinner were followed by the cultural function, which were enjoyed by the participants. Mr. Mohammed Rafiqul Alam, FCMA, Past Chairman of CBC nicely conducted the raffle draw & cultural function and vote of thanks was offered by Mr. Mohammed Monoarul Hoque, ACMA Treasurer, CBC.
The Cost and Management, November-December, 2011

The Dhaka Branch Council of The Institute of Cost and Management Accountants of Bangladesh (ICMAB) organized "DBC Fellowship Night2011" for the ICMAB Members at the Bangabandhu International Conference Centre, Sher-e-Banglanagar, Dhaka on December 17, 2011.
48