SLAASMB looks at Touchwood

The Sri Lanka Accounting and Auditing Standards Monitoring Board (SLAASMB) has issued a response to statements made by Touchwood Investments Limited and its accounting practices.

This past week, the SLAASMB said it considered relevant factors and explanations provided by Touchwood, and has once again reiterated that the company's financial statements are 'clearly unreliable.' SLAASMB launched an investigation in the company's accounting practices at the end of last year and have determined that 'the method of valuation used by Touchwood for the year ended March 2005 was not in accordance with International Accounting Standard (IAS) 41 Agriculture.'

Two weeks ago, Touchwood said it 'has adhered to the correct accounting policies and procedures and in particular, has applied IAS 41.' They said IAS 41 has been developed and used internationally in order to reflect the 'fair value' of the 'security' and that the standard has been taken into the books of Touchwood on 'a most conservative basis.' Touchwood said their accounts have been audited by KPMG Ford Rhodes Thornton and have conformed to applicable local and international accounting standards.

The SLAASMB said the model used for valuation for the year ended 31 March 2006 'gives a valuation in excess of Rs.5,000 per plant at the time of planting, whereas the replacement cost is likely to be around Rs.500.

Touchwood was also unable to justify the discount rate of 12% per annum used to discount the proceeds on maturity of the trees even though the model is highly sensitive to the discount rate used. In comparison, the rate used by Touchwood to discount future expenses is 22% per annum and the weighted average cost of contracts entered into by Touchwood is even higher. (NG)