To even better understand the key regulatory requirements and Audit Committee (AC) priorities, the Audit Committee Forum organised its fifth evening presentation and panel discussion recently, at the Institute of Chartered Accountants of Sri Lanka.
The event brought together the Audit Committee members and representatives of the Colombo Stock Exchange (CSE) and the Securities and Exchange Commission (SEC) to discuss the key issues and challenges on relevant regulations and best practices with KPMG Partner Suren Rajakarier providing valuable insight for further discussions.
Setting the platform for discussion, key presenters CSE Chief Executive Officer Rajeeva Bandaranaike and SEC Director Corporate Affairs Harshana Suriyapperuma addressed the gathering on the current state of the capital market regulatory requirements and compliance expectations from a regulatory perspective.
Presenting at the forum, Rajeeva outlined the relevant listing rules and spoke of non-compliance issues frequently encountered, which included non-disclosures and clear breaches of the rules making specific reference to: The desirability of having the Audit Committees briefed from time to time, on developments in accounting standards, the concern that unaudited fourth quarter financials sometimes differed significantly from the audited financials, concerns about valuations of Property, Plant and Equipment (PPE) and fair values of biological assets, related party transactions, where guidelines issued two years ago were becoming mandatory from January 1, 2016.
Suriyapperuma, who has been directly involved in ensuring that investors are provided with material information in order to make informed investment decisions, stated the rationale for Audit Committees (AC) and pointed out: ACs should focus on effectiveness (and the spirit of the law); not on “ticking boxes”, The responsibilities (and liabilities) of Directors are amplified when they serve on an AC, ACs should obtain external expertise, whenever needed, the SEC viewed a badly functioning AC as a warning signal about the state of the entity as a whole, the regulator intended, in the first case, to be supportive of good governance and favoured dialogue over confrontation.
He also referred to the responsibility of assessing ‘going concern’ status was particularly important. He further stated that regulators (for instance the Central Bank, SEC and IBSL) collaborated in their regulatory roles when needed. Referring to deficiencies on the part of ACs observed by the SEC in practice, he referred to instances of: Significant fraud, Non-compliance with basic accounting standards, subjective PPE valuations, improper constitution of the AC and the auditor not appearing independent.
The presentations were followed by an interactive panel discussion moderated by Suren Rajakarier, Partner – Head of Audit, KPMG in Sri Lanka, which was the main highlight of the forum. The panel consisted of CSE Chief Executive Officer Rajeeva Bandaranaike, CSE Head of Listings and Corporate Affairs Priyana Gunesekera and SEC Corporate Affairs Director Harshana Suriyapperuma.
Responding to a question on why the AC should assume heightened responsibility, when the management has primary responsibility for their preparation, and auditors have responsibility for their audit, Harshana stated that the Board still remains primarily responsible for financial statements issued. He added that the responsibility of ACs is oversight- to gain assurance that proper procedure is in place on the preparation and presentation of the financial statements.
The panellists discussed the guidance on related party transactions agreeing that the law and listing rules state what is mandatory and it is best to go beyond these and be guided by principles to consider if the transactions and terms are in the best interest of the entity. The need to comply with the guideline on minimum public holdings, which had been announced at the beginning of 2014 and would come into force on December 31, 2015 was also discussed. Responding to a question on, why isn’t a policy of “name & shame” followed, for market awareness and deterrence? It was stated that the regulator is beginning to follow a “name & shame” policy, as evident recently.
The AC Forum hopes to continue similar knowledge sharing initiatives, bringing together professionals to share their expertise on topics that are of relevance to AC members. Commenting on the Forum, Suren Rajakarier said, “KPMG is pleased to continue to serve the forum as a resource, sharing information relating to governance, risk management, developments in accounting and auditing requirements and to moderate the exchange of ideas at the roundtable discussions.
Courtesy: Daily Mirror 30 June 2015