SLAASMB to be funded by Lankan companies

The Sri Lanka Accounting and Auditing Standards Monitoring Board (SLAASMB) from 2008 onwards will be funded by a Cess charged on a cross section of business enterprises in the country as against earlier funding from the government, a top SLAASMB official said.

“The SLAASMB, which was set up through a recommendation given by the Committee on Finance Sector Reforms (CFSR) in 1993, launched its operations five years later, in 1998.

The CFSR recommended that during the initial years, the SLAASM was to be financed by the government and subsequently a Cess to be imposed to companies which came under the purview of SLAASMB in order to finance this body,” Ajith Ratnayake, Director General SLAASMB told The Sunday Times FT.

“This direction is law and since we have been in operation for the last 10 years, we thought it best to make a recommendation to the Ministry of Finance to impose a Cess on companies, which came under our purview of the Sri Lanka Accounting and Auditing Standards Act No.15 of 1995,” he explained.

Ratnayake said there are 1070 companies which come under this Act and they are called ‘specified business enterprises’.
“Listed firms, banks, insurance companies, finance companies, leasing and factoring companies and companies with certain ‘limits’ fall into this category,” he pointed out.

Under firms which have limits, companies that exceed the turnover of Rs.500 million, companies which have gross assets of more than Rs.300 million, firms which have borrowings from banks in excess of Rs.100 million, those who have equity in excess of Rs.100 million and companies in excess of 1000 employees are categorised.

“These firms are liable to pay 0.01 percent of shareholders’ equity as shown in their balance sheet of the previous year or 0.1 percent of its net profit for the previous year whichever is higher,” Ratnayake explained.

He said the Cess will be charged on the date the financial year on the particular company ends, starting from 2008.

When asked the companies’ level of conformity to SLAASMB directions, Ratnayake noted that when compared to the rest of the world, Sri Lanka comes out on top. “The introduction of Sri Lanka Accounting and Auditing Standards Act has deterred violations of the stipulated standards. There are three kinds of irregularities we are concerned about. First are the minor irregularities, where companies do not disclose some minor information stipulated by the standards. Here we send advisory letters to the particular companies. Next comes the significant cases where we inquire into and investigate whether our suspicions on deliberate fraud are confirmed. Here we ask the companies to correct the irregularities through written documentation. The time period depends on the nature of the issue concerned. If the firms do not agree we issue a direction,” he explained.

He said the third type is the serious cases where SLAASMB is forced to take legal action and refer the case to the Attorney General’s Department.

“These (serious) types are very rare, but we have quite a number of significant cases,” Ratnayake added.

He noted that when SLAASMB was formed by the Act in 1995, it was the only such body in the world. “The UK had a Financial Reporting Review Panel, which did not have statutory powers to call for information like us, but after Enron and WorldCom many countries set up monitoring bodies such as ours,” he said.

He said presently there are 22 countries which have such entities and there is and international organization called the International forum of Independent Audit regulators (IFIAR) which meet regulatory.