Observations Made on Review of Financial Statements during 2016
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 the financial statements. These undertakings resulted in corrections to net profits/equity amounting to Rs. 1.91 billion.
Types of items for which the undertakings were obtained along with the Sri Lanka Accounting Standards (Prefixed SLFRS/ LKAS) not complied with by the SBEs are as follows.
Failure to make allowances in respect of doubtful receivables from related parties (Reference; LKAS 39 paragraph 58)
Failure to prepare and present consolidated financial statements (Reference; LKAS 27 paragraphs 9 and 10)
Failure to recognise liabilities for taxes in default (Reference; Conceptual Framework paragraph 4.4)
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 Sri Lanka AccountingStandards (Prefixed SLFRS/ 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 relationship as well as information about the transactions with related parties – in 88 SBEs including 22 in SME sector. (Reference; LKAS 24 paragraphs 17 and 18; SME section 33 paragraphs 33.9 and 33.10)
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 24 SBEs. (Reference;SLFRS 7 paragraphs 31, 36 and 37)
Failure to disclose valuation techniques used,inputs used in fair value measurements,quantitative information about the significant unobservable inputs used,significant adjustments made for the inputs and fair value hierarchy for each class of assets and liabilities measured at fair value –in 34 SBEs (Reference; SLFRS 13 paragraphs 91 and 93)
Failure to disclose the effective date of the revaluation, method and significant assumptions used in the valuation and carrying value of the property plant and equipment that would have been recognised had the asset been carried under the cost model – in 28 SBEs (Reference; LKAS 16 paragraph 77)
Failure to recognise deferred tax liabilities – in 22 SBEs including 5 in SME sector(Reference; LKAS 12 paragraphs 15, 20 and 24 and SME Section 29 paragraph 29.15)
Failure to recognise impairment losses at the end of each reporting period when objective evidence exist, that a financial asset or group of financial assets is impaired – in 48 SBEs including 5 in SME sector. (Reference; LKAS 39 paragraph 58, LKAS 36 paragraph 9 and SME Secion 11 paragraph 11.21)
Failure to apply the selected accounting policy (i.e., revaluation model), to the entire class of property plant and equipment and failing to perform regular revaluations when the fair values of the revalued assets differ materially from its carrying amounts – in 13 SBEs. (Reference; LKAS 16 paragraphs 29 and 34)
Failure to adopt actuarial valuation method to measure all material post- employment benefits and to determine the present value of its defined benefit obligation by using projected unit credit method – in 14 SBEs.(Reference; LKAS 19 paragraphs 56, 57 and 67)