Lease Accounting Practice of Leasing Companies in Bangladesh: a Lessor’s Disclosure Perspective
Lease Accounting Practice of Leasing Companies in
Bangladesh: A Lessor’s Disclosure Perspective
Taslima Nasreen
Mosammet Asma Jahan
Abstract: As the development process in financial sector proceeds, Non-Bank
Financial Institutions (NBFIs) became prominent alongside the banking sector.
The major business of most NBFIs in Bangladesh is leasing. Lease accounting is a form-driven standard. The Institute of Chartered Accountants of Bangladesh (ICAB) recently adopted a revised accounting standard No. BAS 17: (Leases) on 18
November 2003 effective from January 1, 2004. This article highlighted the present state of accounting for lease in Bangladesh, an analytical review of disclosure requirement of BAS: 17 and extent of compliance with the disclosure requirement of BAS: 17 from the lessor’s point of view. Findings of this report indicate that the degree of correspondence between the standard per BAS 17 and actual reporting by the leasing companies in Bangladesh is not satisfactory.
Keywords: Lease Accounting, Lessor, Non-bank financial institutions.
Introduction
Non-Bank Financial Institutions (NBFIs) play a significant role in meeting the diverse financial need of various sectors of an economy and thus contribute to the economic development of the country as well as to the deepening of the country’s financial system. According to Goldsmith
(1969), financial development in a country starts with the development of banking institutions.
As the development process proceeds, NBFIs become prominent alongside the banking sector.
The major business of most NBFIs in Bangladesh is leasing, though some are also diversifying into other lines of business like term lending, housing finance, merchant banking, equity financing, venture capital financing etc. Lease financing, term lending and housing finance constituted 94 percent of the total financing activities of all NBFIs up to June 2006. Industrial
Promotion and Development Company (IPDC) was the
Bangladesh: A Lessor’s Disclosure Perspective
Taslima Nasreen
Mosammet Asma Jahan
Abstract: As the development process in financial sector proceeds, Non-Bank
Financial Institutions (NBFIs) became prominent alongside the banking sector.
The major business of most NBFIs in Bangladesh is leasing. Lease accounting is a form-driven standard. The Institute of Chartered Accountants of Bangladesh (ICAB) recently adopted a revised accounting standard No. BAS 17: (Leases) on 18
November 2003 effective from January 1, 2004. This article highlighted the present state of accounting for lease in Bangladesh, an analytical review of disclosure requirement of BAS: 17 and extent of compliance with the disclosure requirement of BAS: 17 from the lessor’s point of view. Findings of this report indicate that the degree of correspondence between the standard per BAS 17 and actual reporting by the leasing companies in Bangladesh is not satisfactory.
Keywords: Lease Accounting, Lessor, Non-bank financial institutions.
Introduction
Non-Bank Financial Institutions (NBFIs) play a significant role in meeting the diverse financial need of various sectors of an economy and thus contribute to the economic development of the country as well as to the deepening of the country’s financial system. According to Goldsmith
(1969), financial development in a country starts with the development of banking institutions.
As the development process proceeds, NBFIs become prominent alongside the banking sector.
The major business of most NBFIs in Bangladesh is leasing, though some are also diversifying into other lines of business like term lending, housing finance, merchant banking, equity financing, venture capital financing etc. Lease financing, term lending and housing finance constituted 94 percent of the total financing activities of all NBFIs up to June 2006. Industrial
Promotion and Development Company (IPDC) was the
References: Ahmed M.U. and Humayan K. (1995), “External Financial Reporting as Envisaged in Companies Act1994: A Critical Evaluation,” Dhaka University Journal of Business Studies, 16(1):185 – 208. Annual reports (2006), (Dhaka: First Lease InternationalLtd.). Annual reports (2006), (Dhaka: Industrial Development Leasing Company of Bangladesh Ltd.). Annual reports (2006), (Dhaka: International Leasing & Financial Service Ltd.). Annual reports (2006), (Dhaka: Islamic Finance and Investment Ltd.). Annual reports (2006), (Dhaka: MIDAS Financing Ltd.). Annual reports (2006), (Dhaka: Peoples Leasing and Financial Services Ltd.). Annual reports (2006), (Dhaka: Prime Finance & Investment Ltd.). Annual reports (2006), (Dhaka: United Leasing Ltd.). Annual reports (2006) (Dhaka: Uttara Finance Ltd.). Bakker, M. R. and Gross, A. (2004), “Development of Non-bank Financial Institutions and Capital Markets in European Union Accession Countries,” World Bank Working Paper No.28. Banerjee, P. K. and Mamun, A. A. (2003), “Lease Financing in Bangladesh,” Research Paper of Bangladesh Inatitute of Bank Management (BIBM), (Dhaka: BIBM). Barai, M. K., Saha, S. and Mamun, A. A. (1999), “Progress and Prospects of Non-Bank Financial Institutions in Bangladesh,” Bank Parikrama, XXIV(1). Bhuiyan N. U. and Ainul I. (1997), “Lease Financing: A Hybrid Financial Activity Comprising Financial and Investment Decision,” The Cost and Management, XXV(2): 11- 16. Chen Y.C. (2001), “Lease Financing in Taiwan,” World Leasing Yearbook, (UK: Adrian Horn brook). Choudhury A. Q. (2001), “Leasing in Bangladesh – Problems and Prospects,” The Daily Star, April 4, 2001. Choudhury A. Q. (2005), “Spotlight on the NBFIs of Bangladesh,” Bangladesh Leasing & Finance Conpanies Association (BLFCA) Year Book. Epstin B.I. and Azizul M. (2003), Interpretation and Application of International Accounting Standards, (New york: Jhon Wiley & Sons). Goldsmith, R.W. (1969), Financial Structure and Development, (London: Yale University Press). Gujrati, D.N. (2003), Basic Econometrics, (New york: McGraw Hill), Fourth Edition. Jahur M. S. and Jamal, U. (2002), “ Lease Capitalization: Some implication for Financial Analysis,” The Cost and Management, XXX(2):11- 16. Jamal, S. H. (2004), “Banking and Leasing Complementary to Each Other,” Bangladesh Leasing & Finance Conpanies Association (BLFCA) Year Book Year Book . Keiso, D. E. and Weygandt J. (2005), Intermediate Accounting, (New York: John wiley & Sons), 11th Edition. Khan, A. A. (2004), “Leasing in Bangladesh,” Bangladesh Leasing & Finance Conpanies Association (BLFCA) Year Book. Podder T.K. (2004), “Leasing as an alternative sources of financing – Problems and Prospects in the context of Bangladesh,” Working paper, (Dhaka) Prospectus (2006), (Dhaka: Bangladesh Finance and Investment Company Ltd.). Prospectus (2006), (Dhaka: Lanka Bangla Finance Ltd.) Prospectus (2006), (Dhaka: Phoenix Finance and Investments Ltd.). Rafiuddin. A. (1991), “Concepts and Practices of Leasing,” The Cost and Management, XIX(6): 4- 9. Sarker, M. (2004), “Managing a Non-Banking Financial Institutions – Some Issues of Concern,” Bangladesh Leasing & Finance Conpanies Association (BLFCA) Year Book. Uddin S. (2005), “IFRS/BAS vis-à-vis Lease Accounting: Bangladesh Perspective,” The Cost and Management, XXXIII(1): 10- 14. 14 The Cost and Management, November-December, 2007 Nasreen & Jahan The Cost and Management, November-December, 2007 15 Lease Accounting practice of Leasing Companies in Bangladesh: A Lessor’s Disclosure Perspective