Review of financial statements

Sri Lanka Accounting and Auditing Standards Monitoring Board (SLAASMB) obtained undertakings from Specified Business Enterprises (SBEs) to make corrections in financial statements which required changes in net profit and equity amounting to Rs 1.2 billion during the year 2010. Types of items for which undertakings were obtained are given below.

* Failure to recognize impairment of investments in equity

* Not making allowance in respect of doubtful debts

* Failure to recognize part of the surplus arising from a revaluation

* Failure to carry out revaluations with sufficient regularity

* Recognition of a gain expected from a contingent asset in the form of a capital reserve

* Failure to prepare and present consolidated financial statements, where control over a subsidiary was acquired during the financial period.

Letters of Assistance

The identified 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 the Board, are intended to be letters of assistance.

The main findings on which the letters of assistance were issued are set out below.

* Not computing the present value of the liability in respect of gratuity by using the projected unit credit method as required by the Standard.

* Not adopting a systematic basis of depreciating property, plant and equipment

* Not recognizing deferred tax liability for taxable temporary differences

* Revaluation of property plant and equipment not made regularly, where revaluation model has been selected

* Not revaluing the entire class of property, plan and equipment to which the revalued asset belongs.

* Not using uniform accounting policies for like transactions and other similar events when preparing consolidated financial statements.

* Recording a foreign currency transaction at an exchange rate which prevailed two years before the date of the Balance Sheet.

* When computing earnings per share, not adjusting the weighted average number of ordinary shares outstanding during the period and of all periods presented for events that change the number of shares without a corresponding change in resources.

* Not recognizing property held to earn rentals or for capital appreciation as investment property.

(SLAASMB)