Impact of Data Verification System on Financial Statements Readability: Evidence from Islamic and Conventional Financial Institutions in Bangladesh

Abstract

Purpose: The main objective of this study is to examine the impact
of Document Verification System (DVS), a verification software by
ICAB, on readability of financial statements prepared by
Bangladeshi banks and insurance companies listed in Dhaka Stock
Exchange. This study also explores the potential moderating role of
Islamic Sharīʿah- compliant reporting by full- fledged Islamic
banks and insurance companies.
Design/Methodology/Approach: The sample includes all 10
Islamic banks and 8 Islamic insurance companies, along with an
equivalent number of conventional banks and conventional
insurance companies listed on Dhaka Stock exchange in January
2024. Therefore, a total of 36 companies constitute our sample. As
DVS had been implemented in 2020, financial statements for 2018,
2019 (pre-DVS period) and 2021, 2022 (post DVS period) have
been collected to enable comparative analysis. Pooled OLS with
Fixed Effects Model and Random effects Model have been used as
estimation techniques.
Findings: Results of the study show that there is significant
negative relationship between DVS and financial statements
readability, indicating that introduction of DVS led to an
improvement in financial statements readability, as measured by a
lower Bog Index readability score. However, the study also found
that Islamic reporting adopted by Islamic banks and insurance
companies does not moderate the effect of DVS on financial
statements readability.
Significance: This research is the first conducted examination of
DVS and its impact financial statements readability. Its outcomes
are expected to pave the way for regulators to reap the most benefits
of DVS and protect stakeholders' interests.