26 May, 2022


Regulatory Reforms To Assure Due Compliance With Laws, Transparency & Good Governance

By Chandra Jayaratne

Chandra Jayaratne

Chandra Jayaratne

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

Institute of Chartered Accountants of Sri Lanka
30A, Malalasekera Mawatha,
Colombo 7.

Dear Sirs,

Regulatory Reforms to Assure Due Compliance with Laws, Transparency & Good Governance

It is reported by professional analysts and also commonly believed by intellectuals, that;

  1. the significant fall in tax revenues to gross domestic product ,from around twenty percent to around ten percent, may be due to a high level of tax, customs duty and excise evasion / avoidance, grant of excessive and unjustified tax holidays and specific exemptions; and
  2. the share of the informal black economy has increased significantly over the last several decades; and
  3. a significant extent of money laundering has taken place over the last decade, mainly using proceeds of crime, bribery and corruption; and
  4. leading bankers believe, that a majority of financial statements and valuation reports presented in securing loans and other facilities, as well as financial facilities supported by project linked estimates submitted to lending agencies, are inaccurate, contain gross misrepresentations and are prepared violating accepted principles and standards; and
  5. a significant minority of professional practitioners have aided and abetted in the carrying out and concealment of above; and
  6. a regrettable failure of due enforcement of laws and regulations are visible throughout the economy;

and these issues need addressing with essential regulatory reforms.

Good governance champions and investigators have reported significant deficiencies at individual entity level regard management action and regards external audit review effectiveness;

  1. not having in place strong chains of control and compliance processes;and
  2. low effectiveness of professional due diligence, upholding of ethical standards and conduct and application of professional best practices;
  3. ineffectiveness of the operation of audit committees eg. Audit committee Chairman persuading a highlight on ‘going concern status’ to be removed by the auditors;
  4. use of inappropriate accounting policies eg. Small business standards adopted in entities with billions of rupees of turnover, profits, assets etc and these accounts not being submitted for review by the SLAAMB;
  5. audited accounts issued without effective disclosure of related party details eg. By noting that related party details are to be filled in by the management;
  6. secretarial companies with related party networks to auditors operating as the Company Secretary of audited companies;
  7. misleading tagging of assets to avoid impairment provisions eg. Uncollateralized REPO’s;
  8. auditors and professionals providing regulatory agencies and investigators with incorrect information eg. Auditors misrepresenting facts to COPE;
  9. classification of taxable revenues and taxable profits as exempt income and exempt profits;
  10. bankers, professionals and othersentities, required to exercise caution in terms of FATF 40 guidelines for control of money laundering and terrorism financing, failing to do so; and not obtaining ‘know Your Customer” declaration; and not exercising due diligence in crediting proceed of large cash deposits/inward remittances as well as outward remittances and withdrawal of large amounts in cash;

In the above context, the recently reported market issues and professional challenges, it is essential that the Sri Lanka Accounting and Auditing Standards Monitoring Board (SLAASMB) and the Institute of Chartered Accountants of Sri Lanka (ICASL), duly consider and introduce necessary regulatory reforms and oversight mechanisms, to assure upholding of professional standards, best practices, ethics and conduct by professional accountants and business undertakings. Such reforms are urgently needed to assure due compliance with laws and regulations, and in upholding transparency, good governance and anti corruption by the business undertaking and professional accountants.

The following submissions are placed before you, for your due consideration and early reform action, following stakeholder consultation;

1. Take early steps to locally adopt appropriate Auditing Standards mirroring International Auditing and Assurance Standards Board (IAASB) issued new revised

  • International Standard on Auditing (ISA 700) dealing with the auditor’s responsibility to form an opinion on the financial statements as well as the form and content of the auditor’s report issued as a result of an audit of financial statements, and
  • International Standard on Auditing (ISA701) dealing with the auditor’s responsibility to communicate key audit matters (KAM) in the auditor’s report, and
  • With such new local Standards being adopted incorporating any essential local application amendments; and
  • Be made applicable to all audits of complete sets of general purpose financial statements conducted by members of the Institute of Chartered Accountants ( ie. not limited to audits of listed entities and specified business undertakings only)

2. Take early steps to locally adopt International Ethics Standards Board for Accountants (IESB) designated, international ethics standard for auditors and other professional accountants (PA’s) ( including as appropriate Auditors, Other PAs in public practice, PAs in business who are in senior-level roles—directors, officers, or senior employees in their employing organizations and Other PAs in business ), in responding to Non Compliance with Laws and Regulations (NOCLAR), a framework adopted to guide PAs actions to take in the public interest to disclose to appropriate public authorities, when they become aware of a potential illegal acts, known as non-compliance with laws and regulations, or NOCLAR, committed by a client or employer, (should be adopted in Sri Lanka with any essential local application amendments)

3. Take early steps to expand the scope and terms of reference of the SLAASMB as set out in the statute, enabling it to be empowered to exercise oversight over SLSQC 1 (Sri Lanka Standard on Quality Control) https://www.casrilanka.com/casl/images/stories/content/business/mba/slsqc_1.pdf and the Code of Professional Practice, Ethics and Conduct of the ICASL.

4. Require the auditors as a part of the audit report to specify that ;

  • They have duly complied with the provisions of the Company Law and have no direct or indirect connections or relationships with the duly appointed Company Secretary of the entity; and
  • They have no conflicts of interests or related party connections what so ever with the entity and its directors and officers; and
  • They have declared in their report all material non compliances with laws and regulations, that have come to their attention during the course of the audit, including any suspicious transactions connected with purported acts of bribery, corruption, money laundering, terrorism financing, tax, customs duty and excise evasion, fraud, corruption and use of proceeds of crime; as well as any assets held by nominees; assets held as bearer instruments; or investments or financial instruments registered in tax havens and or in orbit or in the cloud; and
  • To the best of their knowledge and belief affirm that the statements of account makes an accurate disclosure of conflicts of interests, related party transactions, ultimate parent company and going concern status; and
  • To the best of their knowledge and belief affirm that the statements of account have adopted appropriate and applicable accounting policies and accounting standards and where appropriate specifically adopt standards relating to consolidation of accounts, impairment of assets and valuation of liabilities including due disclosure of contingent liabilities; and
  • To the best of their knowledge and belief affirm that the statements of account discloses the composition of the largest shareholders and confirm that there are no undisclosed nominee holdings and or shares of the entity held in trust offshore.

5. Expand the list of specified business undertaking under the Sri Lanka Accounting and Auditing Standards Monitoring Board Act to include, licensed Primary Dealers; licensed pawning business; any business undertaking or Trust accepting public funds by way of deposits, premiums, contributions for savings, thrift, or other designated purposes; accepting public funds locally and international fund transfers by way of charitable donations, grants and endowments; and further clarify that any Other Company satisfying any one or more of the under noted classifications will be deemed to be a specified business undertaking;

  • Which has a turnover in excess of Rupees 500 Million;
  • Which at the end of the previous financial year, had shareholders equity in excess of Rupees 100 Million;
  • Which at the end of the previous financial year, had gross assets in excess of Rupees 300 Million;
  • Which at the end of the previous year had liabilities to banks and other financial institutions in excess of Rupees 100 Million;
  • Which have a staff in excess of 1000 employees:

6. It is recommended that SLAASMB and the ICASL respectively

  • Makes enhanced disclosure on effectiveness of enforcement of Sri Lanka Accounting and Auditing Standards and due compliance thereof by specified business undertaking and Auditors and Professional Accountants; with specific emphasis on public disclosure duly empowered by statute of any significant non-compliance detected ; and
  • Make provision in their web sites for any person or persons to submit complaints, in confidence, against any business entity or professional practitioner/accountant who may have failed in their accountability / responsibility in terms of Sri Lanka Accounting and Auditing Standards Monitoring Board Act and or the Code of Professional Practice, Ethics and Conduct of the ICASL.

7. It is recommended that the ICASL in its web site respond to the specific observations disclosed in the web site of SLAASMB under significant cases detected, observations following review of financial statements and audit reviews, setting out follow up action taken

8. It is essential that SLAASMB and ICASL approach enforcement and oversight of accounting and auditing standards, as well as the upholding and due enforcement of codes of professional conduct and ethics from a stand point, that they must consider and place emphasis on the collective interests of all connected stakeholders including the State, the creditors, lenders and analysts as well as the wider society and not be restricted by a narrow definition that they owe a duty and obligations only to shareholders, being the primary party to whom the audit report addressed.

It is further stressed that the ICASL should take the leadership along with other professional groups to enhance awareness of all connected stakeholders in regard to the issues as highlighted herein.

Please note that copies of this letter will be released to the media for publication and circulated to several of the connected stakeholders.

It is the fervent hope of the undersigned that this submission will receive the priority attention of the leadership teams of SLAAMB and ICASL

Best Regards
Yours Sincerely,

Print Friendly, PDF & Email

Latest comments

  • 0

    Chandra Jayaratne

    RE:Regulatory Reforms To Assure Due Compliance With Laws, Transparency & Good Governance

    Will thee be compliance? That is the real question.

    Anyway, it is good to have regulatory reforms.

    • 0

      Oh What a windbag this Chandra dude is!

      • 0

        The System,
        The system, my friend, is a FRAUD.

        Your ask me is I have ever been to Prison?
        I answer, I am still there, trying to get out.

        The IMF which is supposed to do global financial governance, but has legalized global financial crime and robbery of the global commons by the global 1 percent, is headed by a women who is charged with massive corruption and fraud in France – Christine Legard who is a Blackguard! Hilary Clinton will follow..
        and the joke goes on with the legalized looting of the world poor by the crooks – politicians and corporates – Watch the Hawks on RT! Not that Putin is any better!

  • 1

    Let’s be honest, all regulatory bodies in the country are weak and SLAASMB is no exception.

    Look at their recent track record:

    CBSL has failed to take action against Perpetual Treasuries, Bank of Ceylon, a Public a Debt Department and EPF on the bind scandal.

    SEC screamed about 17 rogue transactions during 2011-2014 and nothing was done to bring the corrupt top businessmen to book.

    SLAASMB has never charged a company director for falsifying accounts over 20 years

    ICASL has never charged an auditor or suspended for company failures such as Pramuka Bank, Golden Key, Ceylinco Group etc.

    Registrar of companies has never instituted action against directors for failure to adhere to Co Act

    CBSL has never charged directors for bailing them out in instances such as Seylan Bank and The Finance Co

    IBSL has never charged insurance companies for manipulated and inflated accounts

    Only hope is FCID since the record of our regulators are appauling.!!!

    Atleast some Entrust directors were housed at the Mansion in Borella when CBSL, SEC failed to take action as usual.

  • 0

    There can be thousand and thousands of regulatory measures incorporated into volumes and volumes of books. What is the use, if the Ministers in-charge issues orders in contravention of all that is written. Just see the latest; The Customs Chief gives orders to release 8oo luxury vehicles imported, all undervalued according to those who are directly involved in investigating the matter. What is the alternative, someone could ask. The answer: go by the rules of regulatory measures and REFUSE any unlawful orders. Recently, it was reported that the Secretary to the Ministry of Tourism refused to sanction a daughter of the Minister to travel abroad for an event in China. However, she participated and lost the passport and had to be issued with an emergency document to travel back. Hope that Secretary is still “Surviving” in his job. That is how all the Professionals and all others must perform their tasks entrusted. It could create some problems and inconvenience at the beginning; but in the long run everyone will learn to follow the rules and there will dawn Yahapalanaya. Professionalism is not only for Professionals; but all other citizens of the country must turn out to be Professionals.

  • 0


    Why are you urging CA Sri Lanka and SLAASMB to “introduce necessary regulatory reforms and oversight mechanisms, to assure upholding of professional standards” when the ‘open & shut’ case of professional misconduct by the ‘Partners’ concerned of the Sri Lanka affiliates of PwC and Ernst & Young in the fraudulent privatisation of the Sri Lanka Insurance Corporation confirmed by the Supreme Court, Parliament’s COPE and the Attorney-General and the failure of CA Sri Lanka and SLAASMB to hold those concerned accountable has been staring you in the face all this time? Impunity is such that some ‘Partners’ faulted have been appointed to the Quality Assurance Board of CA Sri Lanka!

    I have brought this to your attention on several occasions also through ‘Open letters’ in the media. NOT ONCE HAVE YOU RESPONDED. You have never referred to this ‘open & shut’ case in your regular missives also to the President and Prime Minister on the need for good governance with emphasis on accountability. After all, chartered accountants and auditors are the first line of defence against corruption in all entities dealing with financial resources.

    As a senior chartered accountant you are aware that CA Sri Lanka established by Parliament by Act No.23 of 1959 has the necessary regulations “to assure upholding of professional standards” and what is glaringly lacking is the WILL to uphold the same.

    I ask whether you and other proponents of good governance are serious in combating corruption and abuse when the role of auditors is ignored? Although the alleged egregious corruption and abuse of power in Sri Lankan Airlines has banner headlines, what is glaringly omitted is the airline’s longstanding auditors, Ernst & Young.


  • 0

    Chandra Jayaratne, you write so many open letters. Why not write an open letter to the President on the behaviour of his son and his outburst against the FCID, CID and Bribery Commission. No guts ?

Leave A Comment

Comments should not exceed 200 words. Embedding external links and writing in capital letters are discouraged. Commenting is automatically disabled after 5 days and approval may take up to 24 hours. Please read our Comments Policy for further details. Your email address will not be published.