Observations Made on Review of Financial Statements
Undertakings obtained to make the required corrections
Sri Lanka Accounting and Auditing Standards Monitoring Board (SLAASMB) obtained undertakings from nine Specified Business Enterprises (SBEs) to make corrections in financial statements.
A public corporation undertook to make a provision of Rs. 40 Billion in respect of the actuarial present value of pension and social security benefits of its benefits scheme. Other undertakings obtained from public corporations resulted in corrections to net profit/equity amounting to Rs. 253 Million. Undertakings obtained from listed companies in the private sector resulted in corrections to net profits/equity amounting to Rs. 1.2 Billion.
Types of items for which the other undertakings were obtained are as follows:
Not making allowance in respect of doubtful debts.
Recognition of inappropriately excessive values on revaluation of property, plant and equipment and utilisation of the surplus to issue bonus shares.
Failure to revalue assets with sufficient regularity to ensure that the carrying amount does not differ materially from that which would be determined using fair value at the Balance Sheet date when the revaluation model has been applied.
Recognition of purported fair value gain of biological assets as income when the relevant assets did not form part of an agricultural activity as defined in the standards.
Failure to recognise government grants related to assets by setting up the grant as deferred income or by deducting the grant in arriving at the carrying amount of the asset.
Incorrect computation of a gain resulting from change in ownership of a subsidiary.
Letters of Assistance
The identified departures from Sri Lanka Accounting Standards detected, which were material, but not significant as to require the use of procedure using statutory provisions, were informed to the enterprises, by letter, without extensive inquiries, so that enterprises could, where necessary, take corrective action on their own. Such letters not being directions issued by the Board, are intended to be letters of assistance.
The main findings on which the letters of assistance were issued are set out below:
Not computing the present value of the liability in respect of gratuity by using the projected unit credit method as required by the Standard.
Not making allowances in respect of doubtful debts.
Not recognising deferred tax liability for taxable temporary differences.
Not carrying out regular revaluations of property plant and equipment where revaluation model has been selected.
Not revaluing the entire class of property, plant and equipment to which the revalued asset belongs.
Not using uniform accounting policies for like transactions and other similar events when preparing consolidated financial statements.
Not recognising property held to earn rentals or for capital appreciation as investment property.