Iftekhar Rahman
Verdant Global
The Governance Risk Hidden Inside the Numbers
Corruption is not always visible as a bribe, an illicit payment or an unexplained transfer of public funds. It can also appear in subtler forms: a loan repeatedly rescheduled without genuine recovery, an inadequately disclosed related-party exposure, an asset valuation that is not challenged, or an audit observation that remains unresolved. In each case, the financial statements may appear complete while the underlying economic reality remains obscured.
Bangladesh does not lack accounting and auditing standards. The Financial Reporting Act 2015 established the Financial Reporting Council (FRC), and the FRC has stated that it adopted International Financial Reporting Standards (IFRS) without modification in 2020 and International Standards on Auditing (ISA) without modification in 2021 for public-interest entities.¹ The more difficult issue is implementation: whether reported numbers are transparent, whether auditors exercise professional scepticism, and whether identified weaknesses lead to timely corrective action.
Banking-Sector Stress Exposes the Credibility Gap
The banking sector demonstrates why this matters. According to the latest publicly available Bangladesh Bank data, non-performing loans stood at approximately Tk 5.57 trillion, or Tk 5.57 lakh crore, as of 31 December 2025, representing 30.60 percent of outstanding loans. ² Although this was lower than the record level reported in September 2025, the decline followed large-scale rescheduling under special policy support. It does not necessarily indicate an equivalent improvement in cash recovery or underlying asset quality.
The concern remains current. On 13 May 2026, Fitch Ratings noted that the gross non-performing-loan ratio had reached 30.6 percent at end-December 2025, with most non-performing loans concentrated in state-owned banks, and warned that the ratio could rise when forbearance measures are withdrawn.³ The Financial Times had previously reported that Bangladesh Bank engaged EY, Deloitte and KPMG to conduct asset-quality reviews of banks alleged to have suffered significant losses.⁴ Independent reviews must be followed by credible capital-restoration, recovery and resolution plans.
Bangladesh Bank issued Guidance for Banks in Implementing IFRS 9 Financial Instruments through BRPD-1 Circular No. 06 dated 8 March 2026, requiring a phased move towards forward-looking expected-credit-loss assessment. ⁵ Its credibility will depend on data quality, independent model validation, governance discipline and transparent disclosure.
Corporate Transparency Must Go Beyond Formal Compliance
Related-party transactions are not inherently improper. In closely held business groups, however, such transactions and complex group structures can shift or obscure profits, liabilities and risks between entities in ways that are difficult for lenders, investors and regulators to evaluate. IAS 24 requires disclosure of related-party relationships, transactions and outstanding balances, including commitments, where these may affect the interpretation of financial statements. ⁶ A note in the accounts is insufficient if users cannot understand the economic relationship.
This reinforces the case for stronger transfer-pricing enforcement. Bangladesh already has an arm’s-length pricing framework for international transactions under the Income Tax Act 2023.⁷ The priority is implementation: stronger tax-administration capacity, risk-based review of material intra-group transactions, reliable benchmarking data and closer coordination between tax and customs authorities. Reform should remain proportionate and avoid unnecessary burdens for legitimate businesses.
Boards and audit committees should require complete related-party maps, clear approval protocols and independent review of unusual transactions. Regulators should focus on economic substance, not merely the presence of disclosure language.
Auditor Independence Must Be Visible
Audit quality depends on professional scepticism. That scepticism weakens when commercial dependence, familiarity or weak oversight reduce the auditor’s willingness to challenge management. Bangladesh already has safeguards. Under a Bangladesh Securities and Exchange Commission notification, a listed company may not appoint the same chartered-accountancy firm as statutory auditor for more than three consecutive years. The notification also requires compliance with applicable ISA, quality-control requirements and ethical standards. ⁸ The priority is consistent enforcement, effective restrictions on conflicting non-audit services, transparent disclosure of audit and non-audit fees, meaningful audit-committee accountability and publication of anonymised FRC inspection findings.
A recent development adds urgency. The Financial Express reported in May 2026 that KPMG was set to separate from its Bangladesh affiliate, Rahman Rahman Huq, as part of a wider network restructuring also affecting Egypt and Pakistan. ⁹ The reported decision should not be interpreted as evidence of a Bangladesh-specific governance failure. It does, however, raise an important policy question: how can Bangladesh retain internationally connected assurance capacity while strengthening the independence and technical capability of domestic firms?
Public-Sector Audit Must Lead to Action
The public sector requires the same discipline. The Comptroller and Auditor-General is a constitutionally established office.¹⁰ Yet the Bangladesh Public Expenditure and Financial Accountability assessment identified weaknesses in external audit follow-up, legislative scrutiny and the timely public availability of audit findings.¹¹ A practical reform agenda should require time-bound management responses, digital tracking of unresolved observations, stronger parliamentary scrutiny and clear referral protocols where suspected fraud, wilful misconduct or procurement irregularities arise.
Financial Credibility Is an Economic Asset
Audit reform is not a narrow professional concern. It affects the cost of capital, depositor confidence, tax compliance, procurement integrity and the willingness of investors to rely on reported information. Bangladesh has already built much of the formal architecture. The next phase must focus on execution: timely data publication, credible inspection, disciplined remediation and visible accountability.
When financial statements can be trusted, capital is allocated more efficiently, and misconduct becomes harder to conceal. When they cannot, unreliable numbers do more than mislead. They weaken institutions, distort risk and transfer the cost of poor governance to taxpayers, depositors and responsible businesses.
References
¹ Financial Reporting Council Bangladesh, ‘Jurisdiction, Implementation of IFRS and Challenges in Bangladesh’, presentation to the IFRS Emerging Economies Group, November 2025, p. 8, accessed 2 June 2026.
² Md Mehedi Hasan, ‘Bad Loans Fall by Tk 87,298cr in Three Months’, The Daily Star, 3 March 2026, accessed 2 June 2026.
³ Fitch Ratings, ‘Fitch Revises Outlook on Bangladesh to Negative; Affirms at “B+”’, 13 May 2026, accessed 2 June 2026.
⁴ John Reed and Redwan Ahmed, ‘Bangladesh Hires Big Four Audit Firms to Review “Robbed” Banks’, Financial Times, 26 January 2025, accessed 2 June 2026.
⁵ Bangladesh Bank, Banking Regulation and Policy Department-1, Guidance for Banks in Implementing IFRS 9 Financial Instruments, BRPD-1 Circular No. 06, 8 March 2026, accessed 2 June 2026. See also Bangladesh Sangbad Sangstha, ‘BB Issues Implementation Guidance for IFRS 9 Financial Instruments’, 8 March 2026, accessed 2 June 2026.
⁶ IFRS Foundation, ‘IAS 24 Related Party Disclosures’, issued standard summary, accessed 2 June 2026.
⁷ National Board of Revenue, Government of Bangladesh, Income Tax Act 2023, Part 15, Chapter II, sections 233-239, authentic English text published pursuant to S.R.O. No. 404-Law/2025, accessed 2 June 2026.
⁸ Bangladesh Securities and Exchange Commission, Notification on Financial Reporting and Disclosure, Notification No. BSEC/CMRRCD/2006-158/208/Admin/81, dated 20 June 2018, published in the Bangladesh Gazette, Extraordinary Issue, 8 August 2018, conditions 2(2), 2(4) and 2(5), pp. 1-2, accessed 2 June 2026.
⁹ Doulot Akter Mala, ‘Big Four Accounting Firm KPMG Set to Exit Bangladesh’, The Financial Express, 24 May 2026, accessed 2 June 2026.
¹⁰ Office of the Comptroller and Auditor-General of Bangladesh, ‘Constitutional Mandate’, Articles 127-132 of the Constitution of the People’s Republic of Bangladesh, accessed 2 June 2026.
¹¹ PEFA Secretariat and World Bank, Bangladesh Public Expenditure and Financial Accountability Assessment 2021, April 2023, pp. 120 and 164-166, accessed 2 June 2026.
