Observations communicated to enhance compliance with standards (2024)

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 core findings relating to non-compliances observed in the review of financial statements are in respect of the following;

• 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 with (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).
• Undiscounted cash flows of the financial liabilities have not been disclosed in the maturity analysis and appropriate classification is done in the maturity period of financial liabilities in the maturity analysis (Reference; SLFRS 7 paragraphs 39 (a)).
• When objective evidence of impairment in respect of a financial asset or a group of financial assets exists, 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).
• Recognizing revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity does not expect to be entitled in exchange for those goods or services (Reference; SLFRS 15 paragraph 2).
• 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).
• Classifying cash payments relating to the interest portion of the lease liability within financing activities (Reference; SLFRS 16 paragraph 50).
• Not disclosing reliable and comparable information in the financial statements including accounting policies. (Reference; LKAS 1 paragraphs 17).
• 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).
• 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).
• Adequate disclosures for each cash-generating unit (group of units) for which the carrying amount of goodwill or intangible assets with indefinite useful lives allocated to that unit (group of units) is significant in comparison with the entity’s total carrying amount of goodwill or intangible assets with indefinite useful lives have not been made in these financial statements (Reference; LKAS 36 paragraph 134).
• Deficiencies existing in adjustments to profit or loss in arriving at the net cash flows from operating activities in the statement of cash flows (Reference; LKAS 7 paragraph 20).
• Adequate disclosures in relation to the property, plant and equipment stated at revalued amounts have not been made in the financial statements (Reference; LKAS 16 paragraph 77).