SLIC privatization: Monitoring Board clears audit firms

The Sri Lanka Auditing and Accounting Monitoring Board (SLAASMB) has absolved Ernst & Young and PricewaterhouseCoopers (PwC), the two auditing firms at the centre of a storm regarding the privatisation of the Sri Lanka Insurance Corporation (SLIC) of wrongdoing, after a more than 18-month probe.

SLAASMB Senior Technical Manager Anisha Moti told The Sunday Times FT that the investigations had been concluded, over a year and a half after it began.

Moti said the financial statements submitted by Ernst &Young, auditors for SLIC, during the privatization in 2003 were unaudited but were “drawn up only for the buyer and seller.”

"Our statute only gives us the power to monitor the general purpose financial statements," she said. "Those don't come within our purview. We looked at the general purpose financial statements and we went through all the details and the allegations."

The allegations, according to Moti, were the lack of independence by Ernst & Young and PwC when they were appointed as auditors. Moti cited one example as Deva Rodrigo, a member of the steering committee responsible for appointing PwC as financial and legal consultants to the government of Sri Lanka in a lucrative contract worth US$1.6 million. At the same time, Rodrigo was senior partner of PwC. Since then, he has publicly denied any accusations of a conflict of interest by stating that he was not present at meetings where PwC was awarded the contract but Rodrigo was still privy to the minutes of the meeting. However, Moti says those are ethical matters and do not come under the purview of the SLAASMB but also said that the allegations could be valid.

Similarly, allegations were made against former Public Enterprises Reform Commission (PERC) employee Aneela De Soysa. It has been reported that she was appointed partner at PwC in March 2003, a month after leaving PERC and a month prior to the SLIC divestiture which took place on 11 April 2003. Moti maintains that the financial statements drawn up for the buyer and the seller are not general purpose which is used to disseminate information to the public such as shareholders. "If the accounts were drawn up for the year end, it would have been audited and if it was misleading, we could have taken action."

If significant errors are found when financial statements are reviewed, the SLAASMB asks for corrections to be made to the accounts.

"We have the financial statements audited by Ernst & Young after the privatization. We have reviewed it and have written to them on our observations on what needs to be improved." This is known as a 'letter of advice' and companies are under no obligation to comply with the observations.

However, Moti says if companies agree to implement changes and do not follow through, the SLAASMB Board issues a directive and if there is further non-compliance, the SLAASMB has the power to prosecute.

Ernst & Young had apparently changed one of the classifications in terms of current and non currents assets and liabilities which resulted in a material difference in the opening balances which was what the 'letter of advice' was in regard to. "We have reviewed all the information and the case is closed for the time being but if we get any new information, we will have to review it again," Moti said.