The use of the document verification system (DVS) has increased in Bangladesh in the last couple of years, plugging the scope for unruly firms to submit forged audit reports.

The number of audit reports signed by accountants by securing codes from the DVS rose by nearly 2 percent year-on-year to 38,316 in 2021-22 compared to a year prior, data from the Institute of Chartered Accountants of Bangladesh (ICAB) showed.

Chartered accountants signed 29,000 audit reports by securing document verification codes (DVCs) from the DVS in the last financial year.

 "The issuance of DVCs is still going on. We expect the number to grow as the deadline for submissions of tax returns has been extended," said ICAB President Mohammed Forkan Uddin in an interview with The Daily Star recently.

DVS is an electronic method of validating the authenticity of audit reports.

In November 2020, the institute developed the DVS to curb the submission of fake audit reports after its 2,200-plus members teamed up with the National Board of Revenue (NBR) so that verified audited financial statements were submitted along with tax returns. In December of the same year, the NBR asked its field offices to use the DVS.

Later, the ICAB signed agreements with the Financial Reporting Council, the Bangladesh Bank, and the Bangladesh Securities and Exchange Commission so that they notify firms that financial statements without DVC will not be accepted by the regulators, banks and other agencies.

The DVC is an 18-digit code, which the ICAB members generate and print to sign the audited financial statements providing five key financial data on the company, including profits, turnover, total assets and liability.

Regulators and tax offices can then use the DVS from the ICAB website using the DVC.

Forkan, a managing partner of M M Rahman & Co Chartered Accountants, said the quality of the financial statements has improved after the introduction of the DVS.

"Now, companies are at least preparing complete financial statements. Audits are becoming transparent. Companies are also becoming transparent because of the monitoring."

The objective of the DVS is to increase tax collections and tax returns filing by firms and help banks sanction loans based on authentic audited reports.

"It will, thus, reduce default loans and encourage foreign investments in Bangladesh. DVC is a revolutionary step taken by the NBR," Forkan said.

However, there are attempts from various vested corners to create obstacles against the use of DVS on allegations that they are not getting audit reports for the delayed issuance of DVCs. The ICAB president described the allegations as baseless.

"It takes only three minutes to issue a DVC."

The problem, Forkan said, lies in the delay in preparing financial statements and getting ready the supporting documents by the companies.

"If all these are carried out smoothly, it does not take a long time to audit."

"An auditor can only audit when the financial statements and other documents are ready. So, companies need to prepare their statements on time."

According to Forkan, complaints are mainly coming from small companies, not bigger ones.

In the past, many smaller companies did not hire chartered accountants to perform audits. Rather, they used to create fake audit reports and submit them to regulators and other agencies.

"Now they can't do so. Since they can't do that, they are trying to slow the momentum of DVS."

He alleged that the allegations started to emerge after the scope to submit fake audit reports came to an end.

Forkan pointed out that the Bangladesh Bank earlier waived the requirement of DVC for small and medium enterprises when it came to bank loans. This is not a prudent decision.

"DVC is not a barrier to business. It is to ensure compliance," he said, adding that proper audit reports are necessary for understanding the financial base of a firm.

"If the audit report is fake, banks will not get back the loan. We think this should be reinstated to bring about discipline in turn."

He thinks the success of the system depends on how much regulators and public agencies are using it.

"There are speculations that fake DVC is being used and this is not possible for ICAB to prevent."

He urged users such as the NBR and banks to verify the authenticity of the DVC properly. "Here, the government's support is necessary to take the DVS forward."

On audit fees, he said businesses also had to pay to prepare false audit reports.

"Now they are paying for an actual audit report. This sometimes may be higher than the expenses needed to conduct a fake audit report."

Forkan said the ICAB is strongly monitoring its members to ensure that they comply with the rules.

"If we find any deviation, we make them accountable. We are not lenient. We are trying to carry out our responsibilities as an independent regulator."