Observations made on review of financial statements during 2019

    1. Undertakings obtained to make the required corrections

Sri Lanka Accounting and Auditing Standards Monitoring Board (SLAASMB) obtained undertakings from two specified business enterprises (SBEs) to make corrections in the financial statements. These undertakings resulted in corrections to net profits/equity amounting to Rs. 988 million.

Types of items for which the undertakings were obtained along with reference to the Sri Lanka Accounting Standards (Prefixed SLFRS/ LKAS) not complied with by the SBEs are as follows.

Failure to recognise a deferred tax asset/ liability in relation to buildings classified as investment property. (Reference; LKAS 12 paragraph 51)

  • Failure to reflect the Available for Sale (AFS) investments at the amounts for which the company could establish the ownership and the existence (Reference; LKAS 32 paragraph 11 and The Conceptual Framework for Financial Reporting paragraph 4.44)
  • Failure to reflect the amounts payable to related parties at the amounts of their present obligation. (Reference; LKAS 32 paragraph 11 and The Conceptual Framework for Financial Reporting paragraph 4.46)
  • Failure to recognise an allowance for impairment to reflect the amounts due from related parties at their recoverable values. (Reference; LKAS 39 paragraph 58)
    1. 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 SBEs, by letter, without extensive inquiries, so that the SBEs 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 relating to which letters of assistance were sent to the SBEs are set out below

  • Failure to make adequate disclosure at the end of the reporting period, on the nature
    and extent of risks arising from financial instruments to which, the entity is exposed
    – in 31 SBEs
    (Reference; SLFRS 7 paragraphs 35, 36 and 37)
  • Failure to make adequate disclosure 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 – in 28 SBEs
    (Reference; SLFRS 13 paragraphs 91 and 93)
  • Failure to consider all taxable temporary differences when recognizing deferred tax
    liabilities – in 42 SBEs including 13 in SME sector
    (Reference; LKAS 12 paragraphs 15, 24 and 48 and SME Section 29 paragraph
  • Failure to adequately disclose the relationship between tax expense and accounting
    profit and evidence to support recognition of deferred tax on tax losses –in 34 SBEs
    including 10 in SME sector
    (Reference; LKAS 12 paragraph 81and SME Section 29 paragraph 29.32)
  • Failure to make adequate disclosure relating to the nature of the related party
    relationships as well as information about the transactions with related parties – in
    48 SBEs including 19 in SME sector
    (Reference; LKAS 24 paragraph 18 and SME Section 33 paragraph 33.9)
  • Failure to make adequate disclosure in relation to the significant accounting policies
    which comprise of the measurement base and other accounting policies that are
    relevant for an understanding of the financial statements – in 25 SBEs
    (Reference; LKAS 1 paragraphs 15 and 117)
  • Failure to recognise adequate impairment allowances when objective evidence exist
    at the end of each reporting period on impairment of a financial asset or group of
    financial assets – in 20 SBEs including 5 in SME sector
    (Reference; LKAS 36 paragraph 8 and LKAS 39 paragraphs 58 and 63 and SME
    Section 11 paragraph 11.21)
  • Failure to measure the expected credit losses of a financial instrument to reflect the
    time value of money – in 04 SBEs
    (Reference; SLFRS 9 paragraph 5.5.17)
  • Failure to disclose all relevant information in relation to valuation of property plant
    and equipment – in 20 SBEs including 8 in SME sector
    (Reference; LKAS 16 paragraphs 77 and SME Section 17 paragraph 17.33)

Related Links


Latest Findings

Contact Us

Sri Lanka Accounting and Auditing Standards Monitoring Board
3rd floor Bible House Building,
293 Galle Road, Colombo 3, Sri Lanka

Solution by: LankaCom