Observations Made on Review of Financial Statements during 2012
Undertakings Obtained to Make the Required Corrections
Sri Lanka Accounting and Auditing Standards Monitoring Board (SLAASMB) obtained undertakings from eight specified business enterprises (SBEs) to make corrections in financial statements. These undertakings resulted in corrections to net profits/ equity amounting to Rs. 3.4 Billion.
Two public corporations undertook to make provisions totalling Rs. 2.3 Billion in their financial statements while undertakings obtained from companies in the private sector resulted in corrections to net profits/ equity amounting to Rs. 1.1 Billion.
Types of items for which the undertakings were obtained are as follows:
Incorrectly recognising a fair value gain on an investment property in the revaluation surplus.
Recognising investments which were not in existence as assets.
Failure to recognise impairment of the investments in subsidiaries in the separate financial statements.
Failure to present consolidated financial statements.
Failure to reconcile differences in accounts.
Not making allowance for doubtful debts.
Failure to recognise decline in value of investments.
Failure to amortise government grants and recognise as income over the periods necessary to match them with the related costs, which they are intended to compensate.
Failure to recognise the liability in respect of a defined benefit plan.
Letters of Assistance
Departures from Sri Lanka Accounting Standards detected, which were not significant 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 SLAASMB, are intended to be letters of assistance.
The main findings on which the letters of assistance were issued are set out below:
Not making allowances in respect of doubtful debts.
Failure to recognise deferred tax liabilities.
Not computing the present value of the liability in respect of gratuity by using the projected unit credit method as required by the standard.
Failure to carryout regular revaluations of property, plant & equipment where revaluation model has been selected.
Not adopting a depreciation method which reflects the pattern in which the asset’s future economic benefits are expected to be consumed by the entity.
Failure to use uniform accounting policies for like transactions and other similar events when preparing consolidated financial statements.
Failure to include certain subsidiaries when preparing consolidated financial statements.
Failure to recognise property held to earn rentals or for capital appreciation as investment property.
Failure to disclose an explanation of the relationship between the tax expense and accounting profit.