Lease Accounting Practice of Leasing Companies in Bangladesh: a Lessor’s Disclosure Perspective

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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 first private sector NBFI in Bangladesh, which started its operation in 1981. Since then the number has been increasing and in December 2006 it reached 29. Of these, one is government owned, 15 are local (private) and the other 13 are established under joint venture with foreign participation. Leasing in Bangladesh, like in many of its peer countries, owes its origin to the efforts of the International Finance Corporation (IFC), Washington. At the instance of IFC, the first leasing company in Bangladesh, Industrial Development Leasing Company of Bangladesh Ltd. (IDLC) The Cost and Management

Vol. 35 No. 6
November-December, 2007 pp. 5-15
ISSN 1817-5090
Ms. Taslima Nasreen, ACMA and Mosammet Asma Jahan are Assistant Professors, Department of Accounting & Information Systems, Faculty of Business Studies, University of Dhaka, Dhaka, Bangladesh.
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. 5
was set up in 1984 and commenced its operations in 1986, with a 20% shareholding from Korea...
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