Observations Made on Review of Financial Statements during 2014

  1. Undertakings obtained to make the required corrections

  2. Sri Lanka Accounting and Auditing Standards Monitoring Board (SLAASMB) obtained undertakings from five specified business enterprises (SBEs) to make corrections in financial statements. These undertakings resulted in corrections to net profits/equity amounting to Rs. 2.43 billion.

    Types of items for which the undertakings were obtained along with the Sri Lanka Accounting Standards (prefixed SLAS or LKAS) not complied with by the SBEs are as follows.

    • Failure to recognise impairment of investments in subsidiaries in the separate financial             statements (Reference; SLAS 41 paragraph 9

    • Failure to make allowances in respect of doubtful receivables from related parties(Reference; SLAS 3 paragraph 13)

    • Failure to depreciate the depreciable assets over the assets’ useful life (Reference; LKAS 16 paragraph 50)

    • Failure to apply proportionate consolidation method or the equity method when recognizing the interest in jointly controlled entities (Reference; SLAS 31 paragraphs 30 and 38)

    • Failure to present consolidated financial statements (Reference; SLAS 26 paragraph 9 and LKAS 27 paragraphs 9 and 10)

    • Overstatement of liabilities (Reference; SLAS 36 paragraph 10 and Framework paragraph 91)

  3. Letters of Assistance

  4. 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 Sri Lanka AccountingStandards (prefixed SLAS or LKAS) had been complied with by SBEs with issues observed are set out below.

    • Failure to disclose information relating to the nature of the related party relationships as well as information about transactions with related parties – in 163 SBEs including 54 in SME sector. (Reference; LKAS 24 paragraphs 17 and 18; SME section 33 paragraph 33.9)

    • Failure to disclose the nature and extent of risks arising from financial instruments to which the entity is exposed at the end of the reporting period – in 86 SBEs. (Reference; SLFRS 7 paragraphs 31, 36 and 37)

    • Failure to recognise deferred tax liabilities – in 59 SBEs including 16 in SME sector. (Reference; LKAS 12 paragraphs 15, 20 and 24; SME section 29 paragraph 29.15)

    • Failure to disclose the summary of significant accounting policies used when preparing financial statements including the measurement bases that are relevant to understand the financial statements – in 45 SBEs. (Reference; LKAS 1 paragraph 117)

    • Failure to disclose the effective date of revaluation, method and significant assumptions used in the valuation and carrying value of property plant and equipment that would have been recognised under the cost model – in 40 SBEs. (Reference; LKAS 16 paragraph77)

    • Failure to prepare and present consolidated financial statements – in 40 SBEs including 25 in SME sector. (Reference; LKAS 27 paragraphs 9 and 10; SME section 9 paragraphs 9.2 and 9.3)

    • Failure to disclose an explanation of the relationship between tax expense (income) and accounting profit – in 36 SBEs including 18 in SME sector. (Reference; LKAS 12 paragraph 81; SME section 29 paragraph 29.32)

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