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Reyaz
Mihular partner of KPMG Ford, Rhodes, Thornton wants the globally
accepted accountancy framework to be practised in this country.
Q: How has the world of financial reporting changed from, say, five years ago - both locally and internationally?
Globally, the past five years have seen the most significant changes in financial reporting. Historically, the cost-accounting model was followed diligently; but this sometimes did not reflect the real value of a company, as important financial information may remain undisclosed.
The current trend is to practise fairvalue reporting, whereby a company is assessed according to its market value. Of course, one drawback is that volatile markets can cause havoc in reporting - thereby tormenting accountants who favour neat accounts reflecting a pert, upward trend!
Fair-value reporting, which assesses assets and liabilities, reflects a company’s true value and permits greater financial transparency. Sri Lanka is more or less on par with international accounting standards. But there is a lacuna in terms of adopting three to four standards, which is primarily because the Institute of Chartered Accountants of Sri Lanka (ICASL) is a quasi-legislative body - it has to follow a due process before new international accounting practices are gazetted and brought into effect.
Q: Have the merits of transparency assumed more importance following the exposure of corporate frauds like Enron?
Although there was a move towards greater transparency even before this, scandals such as Enron were instrumental in expediting such initiatives.
Take, for example, the recent supreme lending-rate crisis in the US. Under previous accounting procedures, the losses incurred would not have been reflected in the respective companies’ books, but many US banks and financial firms are reflecting substantial losses today.
In the past, if the salaries of CEOs were paid in the form of share options, for instance, this did not find its way into US companies’ books - an example, perhaps, of not revealing the true financial position of a company. Today, US accounting standards - which were once considered sacrosanct for accountants the world over - have declined in terms of importance. Instead, the International Finance Regulatory Standard (IFRS) is emerging as the most popular accounting standard internationally, LMD reported
Q: How can stringent auditing standards benefit an organisation and the country at large?
Strict auditing standards are necessary to regulate accounting standards. With transparent auditing, the integrity of an organisation is enhanced. Foreign investors will derive more comfort and satisfaction from a globally accepted accounting framework.
If the country in which an investor plans to invest is aligned to IFRS, that entity will know exactly what to expect. But if accounting procedures differ from that with which they are familiar, such investors may factor in higher risks, rendering capital more costly.
Q: How do you perceive auditing and financial-reporting standards in the public sector?
The public sector still follows the British-style single-entry accounting system. Although some state banks and the Ceylon Electricity Board have adopted the double-entry system, the rest of the state sector needs to align itself to international standards. Of course, this would call for a sea-change in the public sector’s mindset!
Q:Do you feel that an annual report should be the ultimate showcase for accounting standards, especially as some companies spend millions on theirs?
Since an annual report is a medium of communication between the company and its shareholders, it does play an important role. But annual reports are becoming more detailed and they often exceed the understanding of a lay reader.But today, annual reports are not published merely to cater to shareholders, as many companies tend to use them as corporate profiles or marketing tools, which necessitates the publication of a high-value report.
Q: How does ‘good corporate governance’ - often merely a buzzword, perhaps - relate to strict auditing and financial reporting?
Good corporate governance translates into good value. Companies that practise good corporate governance enjoy high shareholder value. Although some companies may only pay lip service to such concepts, the Central Bank and ICASL have recently emphasised good corporate governance and corporate social responsibility. This should engender greater corporate integrity.
Q: Are there adequate training and employment opportunities in Sri Lanka for those who desire a qualification in accountancy?
ICASL has a robust programme that combines theoretical knowledge acquisition with practical training, which is not mandatory in some other accountancy courses. But the fact remains that we have to address the issue of greater fluency in English for accountants. Accountancy is a business qualification - so, without a sound knowledge of spoken and written English, you cannot be a good accountant!
