Observations communicated to enhance compliance with standards (2023)

Departures from SLFRSs/LKASs detected, which are material, but do not require the use of procedures using statutory provisions, are informed to SBEs as observations, by letters of assistance, so that the SBEs could, where necessary, improve on the compliance, on their own in the future.
The main findings on the review of financial statements, based on the two approaches of conducting such reviews explained in section (3) above, are as follows.

• Preparing financial statements in compliance with SLFRSs/LKASs and taking all necessary measures to ensure that the financial statements are audited in accordance with Sri Lanka Auditing Standards with the object of presenting a true and fair view of the financial performance and financial condition has not been complied (Reference; Act No 15 of 1995 Section 6 (1)).

• The nature and extent of risks arising from financial instruments to which the entity is exposed, and quantitative and qualitative information about the amounts arising from expected credit losses, have not been adequately disclosed at the end of the reporting period (Reference; SLFRS 7 paragraphs 31 to 42).

• When objective evidence of impairment in respect of a financial asset or group of financial assets exist, not recognizing the loss allowance for expected credit losses on financial assets that are measured at amortized cost (Reference; SLFRS 9 paragraph 5.5.1).

• Disclosures relating to valuation techniques used, inputs to the valuation techniques, quantitative information about significant unobservable inputs used, significant adjustments made to the inputs and the fair value hierarchy for each class of assets and liabilities measured at fair value, have not been adequately made (Reference; SLFRS 13 paragraphs 93).

• Information on the performance obligations relating to the contracts with customers such as details as to when performance obligations had been typically met, significant payment terms, nature of goods/services promised, return/refund obligations and types of warranties etc. have not been sufficiently disclosed (Reference; SLFRS 15 paragraph 119).

• Not sufficiently disclosing information to assess the effect that leases may have on the financial position, financial performance and cash flows of the lessee (Reference; SLFRS 16 paragraph 51).

• Adequate disclosures in relation to the basis of preparation of the financial statements and the specific accounting policies and/or significant accounting policies which comprise of the measurement bases and other accounting policies relevant for an understanding of the financial statements have not been made (Reference; LKAS 1 paragraphs 112 and 117).

• Adequate disclosure of the relationship between tax expense and accounting profit and evidence to support the recognition of deferred tax assets arising due to tax losses have not been made (Reference; LKAS 12 paragraph 81).

• Not considering all taxable temporary differences when recognizing deferred tax liabilities or recognizing deferred tax assets, in relation to carried forward tax losses irrespective of the extent of future taxable profits available to utilize the unused tax losses (Reference; LKAS 12 paragraphs 15, 24, 34 and 48).

• Disclosure of all relevant information relating to the revaluation of property plant and equipment has not been made (Reference; LKAS 16 paragraph 77).

• Useful life of an asset not being reviewed at least at each financial year-end (Reference; LKAS 16 paragraph 51).

• Adequate disclosure relating to the nature of the related party relationships as well as information about the transactions with related parties have not been made (Reference; LKAS 24 paragraph 18).