BSEC Weighs Extended Audit Rule to Safeguard Public Interest Post-IPO in Bangladesh

🏛 Dhaka, Bangladesh — Issuers of initial public offerings (IPOs) in Bangladesh will be required to undergo an “extended audit” to physically verify assets, inventories, and bank transactions, as part of a regulatory move by the Bangladesh Securities and Exchange Commission (BSEC) to protect public interest post-IPO.

📊 The BSEC is considering amending the public issue rules to mandate this extended audit requirement. An extended audit is more detailed and broader in scope than a standard audit, requiring the auditor to perform additional procedures, checks, and tests to minimise risk and provide greater assurance of the issuer’s financial strength. It is expected to help expedite the regulatory approval process.

💬 Why Extended Audit Is Needed

💬> Talking to The Financial Express, BSEC officials said conventional audits often avoided physical examination of matters, including assets and inventories, increasing the burden on the regulator to ensure foolproof scrutiny of financial statements.

⚠ Still, mismatches in capital formation have been observed in companies’ financial statements after IPO. Some companies went public showing large paid-up capital on paper, but it was later discovered that a huge amount of money had never been realised from sponsors.

💰 Ring Shine Textiles Case: A Cautionary Example

📊> For example, in 2018, Ring Shine Textiles issued 275.1 million ordinary shares at Tk 10 each to increase its paid-up capital by Tk 2.75 billion. None of the 11 sponsor-directors and most of the 73 external local shareholders who received the shares deposited money against them.

📊 The company reported an escalation of paid-up capital from Tk 99.5 million to Tk 2.85 billion before the IPO, but the auditor did not flag the issue. This type of malpractice is exactly what the extended audit rule aims to prevent.

🤝> How Extended Audit Works

📊> Key features of the proposed extended audit:

• 📜 Extended Terms of Reference (ToR) — BSEC will set the ToR even if financial statements are audited in line with international standards on accounting (ISA)
• 🔍 Physical verification — auditor must physically verify assets and inventories
• 🏦 Bank transaction verification — trace sales to bank receipts and customer records
• 📊 Larger sample testing — examine larger sample than normal audit, investigate unusual transactions
• ✅ Assurance on ToR matters — auditor provides assurance that ToR items have been addressed

💬 A normal audit might check a sample of a company’s sales invoices. But an extended audit might examine a larger sample, trace sales to bank receipts and customer records, and investigate unusual transactions.

💬 BSEC Chairman Masud Khan: Easier Approval Process

💬> BSEC Chairman Masud Khan said the extended audit would make the approval process easier for the authorities and reduce the difficulties faced by companies seeking to go public.

💬 Deloitte Partner: Regulator’s Move Is Right and Timely

💬> Sk. Ashik Iqbal, a partner in the Audit & Assurance practice at Deloitte Bangladesh, said an extended audit would not be necessary if auditors strictly followed ISA.

💬 “Public interest is linked to the audit function of the companies willing to go public,” he said, adding that the securities regulator had taken this step to introduce the extended audit in light of the reality that public interest was not secured even when audits were conducted in line with ISA.

💬 “I think the regulator’s move is right and timely,” said Mr Iqbal. The Financial Reporting Council (FRC) and the Institute of Chartered Accountants of Bangladesh (ICAB) should facilitate the implementation of the extended audit mechanism.

💬 BSEC Spokesperson: Streamlined Post-Audit Process

💬> BSEC spokesperson Md. Abul Kalam said that after receiving assurance from the auditor following an extended audit, the IPO-approving authorities would no longer need to verify the relevant company’s bank transactions, assets, liabilities, revenues, and inventories.

🌏> Strategic Context: Bangladesh Capital Market Reform

📊> For Bangladesh’s capital market, the extended audit proposal is part of BSEC’s broader reform agenda under Chairman Masud Khan:

• 📊 Direct listing rules — enabling large companies to bypass IPO
• 📊 Public-interest company listing — bringing SOEs to capital market
• 📊 Extended audit for IPO — preventing capital formation mismatches
• 📊 New BSEC website — improved investor access to information
• 📊 DSE mutual fund platform — expanding retail investment options
• 📊 AI-based surveillance — detecting market manipulation

📋> Implications for Bangladesh IPO Market

📊> For companies planning IPOs in Bangladesh, the extended audit requirement would mean:

• 💰 Higher audit costs — extended audit requires more work and time
• 📊 Longer preparation timeline — additional procedures before filing
• 📊 Greater transparency — physical verification reduces fraud risk
• 📊 Reduced regulatory friction — post-audit, BSEC won’t re-verify
• 📊 Investor confidence — stronger assurance attracts more investors
• 📊 Capital formation integrity — prevents Ring Shine-type cases

✅> For Bangladesh’s broader capital market strategy, the extended audit proposal addresses a long-standing gap in the IPO process — the inability of conventional audits to detect capital formation fraud. By requiring physical verification of assets and bank transactions, BSEC aims to ensure that companies going public have genuinely realised the capital they claim, protecting retail investors from fraudulent IPOs and strengthening the integrity of the capital market.

🌏> For the audit profession in Bangladesh, the extended audit requirement would elevate standards and create greater accountability — particularly important given the history of audit failures that have contributed to investor losses in the DSE. The involvement of FRC and ICAB in facilitating the implementation signals a collaborative approach between regulators and the accounting profession to strengthen Bangladesh’s financial reporting ecosystem ahead of LDC graduation and the expected increase in capital market activity.