Why every company should be audited

As of July 2022, there were 272,598 companies registered with the Registrar of Joint Stock Companies and Firms (RJSC) in Bangladesh, according to media reports. By 2025, this number is estimated to reach 300,000. Yet only about 40,000 of these companies file tax returns annually, according to the tax authority.

In 2024, the Institute of Chartered Accountants of Bangladesh (ICAB) reported that 57,993 audit reports were issued. These covered companies, societies, partnership firms and other entities.

In Bangladesh, all companies, regardless of size, are legally required to undergo a statutory audit. The important question is, why are around 260,000 companies not filing tax returns after completing a statutory audit?

There could be two main reasons. Many companies may no longer be operational, and some may simply be ignoring compliance with the Companies Act or tax laws.

Why is an external audit required?

The primary purpose of an external audit is to provide reliable financial information to stakeholders who are not involved in a company's daily operations. Beyond this, audits are also required for regulatory compliance, such as for tax returns and RJSC filings.

In the early stages, a company is often formed by family members or close friends using their own capital, without institutional loans. In such cases, the need for a statutory audit is minimal, serving mainly for tax filing purposes. Imposing mandatory audits on these companies simply because they are registered under the Companies Act may not be justified.

Under section 73 of the Income Tax Act 2023, partnership firms, trusts, societies and cooperatives with gross receipts below Tk 50 million are not required to file audited financial statements. A similar threshold could be introduced in the Companies Act to ease the audit burden on small businesses.

In Australia, the Corporations Act 2001 (Chapter 2M) requires a company to be audited only if it meets at least two of the following three criteria: revenue of AUD 50 million or more; assets of AUD 25 million or more; or 100 or more employees. Only Registered Company Auditors (RCAs) approved by the Australian Securities and Investments Commission (ASIC), and qualified through CPA Australia, Chartered Accountants Australia and New Zealand (CAANZ), or the Institute of Public Accountants (IPA), are authorised to conduct statutory audits.

The UK follows a similar approach, with audit thresholds in place. Only members of the Association of Chartered Certified Accountants (ACCA), the Institute of Chartered Accountants in England and Wales (ICAEW), the Institute of Chartered Accountants of Scotland (ICAS), the Institute of Chartered Accountants of Ireland (ICAI), or the Association of Authorised Public Accountants (AAPA) are eligible to perform statutory audits. A profession is not a business driven by a monopoly; it is open to all who pursue the necessary qualifications to serve beyond personal financial interests.

Implementing audit thresholds, as practised in the UK and Australia, would benefit both entrepreneurs and auditors. Small businesses could reduce compliance costs and focus on growth, while auditors could concentrate on defined entities. This would reduce misinformation about the number of companies and practising auditors, and enhance audit quality. Regulatory authorities would also find it easier to oversee compliance requirements.

Improving the quality of audit work is essential, but auditors alone cannot prevent fraud, corruption or money laundering within an organisation or country. These illegal activities are often carried out by groups of individuals in highly sophisticated ways, making them difficult to detect. However, auditors are expected to follow established auditing standards and apply professional scepticism to help identify and reduce the risk of such irregularities.

In a society where irregularities are common, placing blame solely on auditors or any single group does not absolve others of responsibility. Accountability should rest with each individual involved, rather than shifting the burden entirely onto one party.

The writer is a fellow member of ICAB.