Touchwood plc, a public quoted company which is in the seemingly controversial business of ‘plantation futures’ with aso-called buyback scheme on plantation investments, will once more come under the regulator’s microscope with effect from the recently ended financial year of 31.3.13.
This development came about after the Court of Appeal had previously upheld the views of Touchwood, that its accounts cannot be questioned by the Sri Lanka Accounting and Auditing Standards Monitoring Board (SLAASMB) on the basis that its accounting standards are as per an international accounting standard.
That standard was in relation to working out the financial value of agriculture and plantation stocks for which until recently, Sri Lanka didn’t have a compatible accounting standard. The view of the Court, in making that aforesaid judgment was that Touchwood’s accounts don’t come under the jurisdiction of Sri Lanka’s accounting standards as the same had been prepared as per international accounting standards.
This was in respect of Touchwood’s accounts governing the financial years ended 31.3.05 and 31.3.06 respectively against which action had been filed in Court.
But this legal position has seemingly come to pass, with Sri Lanka’s national accountancy body, namely the Institute of Chartered Accountants of Sri Lanka (ICASL), recently adopting new local accounting standards which are compatible with international standards, the bone of contention in respect of Touchwood’s accounting imbroglio.
SLAASMB which comes under the Finance Ministry has also appealed against this Court verdict to the Supreme Court (SC). The SC is expected to hear their appeal next month (May).
The international accounting standard in question is IAS 41. This covers the measurement of accounting values of biological stock such as the sale of commercial trees which is Touchwood’s main line of business.
However, since the beginning of last year, the Institute of Chartered Accountants of Sri Lanka (ICASL) which is responsible for setting accounting standards here, has adopted a new standard called LKS 41 which is allegedly compatible with IAS 41.
The writ of ICASL, according to its website, also entails as its responsibilities, formulating accounting standards which are comparable with international accounting standards (IASs).
“Due to the advent of LKS 41, which is compatible with IAS, we now have power to scrutinize Touchwood’s accounts,” SLAASMB sources said, adding, the violation of SLAASMB’s guidelines is a punishable offence by law.
The sources further said that under the law, SLAASMB has the right to examine the accounts of any institution which either has an annual turnover exceeding Rs 500 million, employees exceeding 1,000, gross assets exceeding Rs 300 million, or bank borrowings exceeding Rs 100 million in the previous financial year.
“Our writ is to examine whether the accounts presented by such institutions are fair and true, if there is massaging of such accounts we are empowered to take action against such miscreants,” the sources said.
“Our ambit also extends in the coverage of public enterprises such as the controversial CEB and Ceylon Petroleum Corporation. But if the accounts presented by those institutions are true and fair, then we have no qualms,” they said.
“Whether an institution is doing well or bad is not our business, our writ is to see whether the accounts presented are just and fair,” the sources further said.
Beyond that, if any action needs to be taken, that will be the business of the related regulator which maybe the Central Bank of Sri Lanka in the event it’s a registered financial institution or the Securities and Exchange Commission in the event of a listed company or a similar regulatory institution.
The sources further said that though LKS 41 came into being from January 2012, SLAASMB’s writ doesn’t cover the fourth quarter ended March 31, 2012 applicable to companies such as Touchwood.
“Our responsibilities cover a complete financial year and not the quarterlies,” they added. The sources further said that though the questionable accounting period in respect of the financial years 2004/05 and 2005/06 respectively, regarding which the Appeal Court judgment was given, the reason why they couldn’t act immediately when they felt that there was a discrepancy in Touchwood’s 2004/05 accounts, even before going into the following year’s accounts was because among other things they wanted to give a fair hearing to the company before acting against the same. “Those take time,” the sources said.