Touchwood in trouble over assets claim

The Sri Lanka Accounting and Auditing Standards Monitoring Board (SLAASMB), after launching an investigation into the financial statements of Touchwood Investments Ltd, has 'determined that the estimates of fair value of biological assets used by Touchwood Investments Ltd in its financial statements for the years ended 31 March 2005 and 31 March 2006 are clearly unreliable.'

It says Touchwood failed to comply with International Accounting Standard (IAS) 41 Agriculture, although the company claims to be in full conformity. The SLAASMB has also determined that the impact of these financial statements is substantial and has decided to 'refer the non-compliance to the Attorney General.' Touchwood, a forest investment scheme has seen a staggering 1806% profit growth within the last two years and a 100% annual asset growth in 2005/6. It recorded profits annually and has maintained a dividend policy of 20%. Over 400,000 trees of high commercial value have been planted. In an interview with The Sunday Times FT in November 2006, Chief Executive Officer Asitha Koralage and Regional Director for Business Development Channa Abeygunawardene called Touchwood a ' true triple bottom line company which covers people, planet and makes profit.'

The company's 2005 – 2006 Annual Report declares a revenue of over Rs.1 billion but out of that sum, approximately Rs.800,000 is listed as "Gain Arising from Changes in Fair Value", this being the subject of the SLAASMB investigation.

When the Colombo Stock Exchange (CSE) brought the SLAASMB into an investigation of the company's accounting practices in November 2006, Abeygunawardene issued a statement to The Sunday Times FT in which he said, "We have complied 100% with the local standards. The bible of accounting, 'Sri Lanka Accounting Standards 2006' is being adhered to." He further stated that this had been confirmed by international auditing firm, KPMG Ford Rhodes who is representing the shareholders interest.

Abeygunawardene went on to say that 'everything is in compliance with accounting standards.' In fact he said, "We are confident that nothing can be proven wrong. As a responsible corporate entity, Touchwood has depicted the true and fair position of the company by bringing in the total assets and liabilities of the company."

However the notes to the accounts in the Annual Report states that the amount related to gain arising from changes in fair value of biological asset, by adoption of IAS-41 'Agriculture' that "this gain is entirely unrealized as at the Balance Sheet date." IAS-41 states that "An enterprise should recognize a biological asset or agriculture produce only when the enterprise controls the asset as a result of past events, it is probable that future economic benefits will flow to the enterprise, and the fair value or cost of the asset can be measured reliably." It specifies measurements and disclosures, amongst other issues pertaining to fair value and presumes that it can be reliably measured for most biological assets. IAS-41 also specifies that the fair value of a biological asset is based on current quoted market prices and is not adjusted to reflect the actual price in a binding sale contract that provides for delivery at a future date.

This week Abeygunawardene said they were standing by their original statement. “However, we cannot comment due to other complications." (NG)