Observations Made on Review of Financial Statements during 2013

1. Undertakings Obtained to Make the Required Corrections


Sri Lanka Accounting and Auditing Standards Monitoring Board (SLAASMB) obtained undertakings from four specified business enterprises (SBEs) to make corrections in financial statements. These undertakings resulted in corrections to net profits/equity amounting to Rs. 1.6 Billion.

Types of items for which the undertakings were obtained are as follows:


• Failure to recognise impairment of the investments in subsidiaries in the separate financial statements.
• Not making allowances in respect of doubtful receivables from related parties.
• Failure to recognise a decline in fair value of investment property when the fair value model has been adopted as the accounting policy.
• Failure to recognise assets held to earn rentals as investment property.
• Failure to depreciate the depreciable assets on a continuous basis over the assets useful life.



2. Letters of Assistance

   
   
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 SLAASMB, are intended to be letters of assistance.

The main findings on which the letters of assistance were issued are set out below:


• Failure to value inventories at lower of cost or net realisable value.
• 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 revalue the entire class of property, plant and equipment for which revaluation policy was adopted.
• Failure to recognise property held to earn rentals or for capital appreciation as investment property.
• Failure to reflect the investment property at fair value as at the reporting date when fair value model has been adopted.
• 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 present consolidated financial statements.
• Failure to include certain subsidiaries in the Group when preparing consolidated financial statements.
• Failure to disclose information relating to the nature of the related party relationships as well as information about Failure to disclose the nature and extent of risk arising from financial instruments to which the entity is exposed at the end of the reporting period.
• Failure to disclose at least three statements of financial position in the entity’s first SLFRS financial statements.