Financial Times

Firms found violating accounting standards
The Sri Lanka Accounting and Auditing Standards Monitoring Board acting under the Sri Lanka Accounting and Auditing Standards Act No. 15 of 1995 issued a statement giving the following details of cases detected during the year 2004 which violated accounting standards:

Senkadagala Finance Company Limited
The Board issued a direction to Senkadagala Finance Company Limited to send a notification to all parties who received the annual audited financial statements explaining a related party transaction that was not adequately disclosed in their financial statements. In response to an inquiry made by the Board, the Company informed that it disposed 300,000 shares of Senkadagala Hotels Limited at Rs. 15.50 per share during the year ended 31st March 2003 to a related party.

The Company also informed the Board of its intention of selling a further 400,000 shares to the same related party during the year ended 31st March 2004 at the same price. By selling the said shares the Company had made a book profit of Rs. 1.31million in the year ended 31st March 2003. However, part of the investment in above shares is valued at Rs. 50 per share, which is significantly higher than the price the shares were sold for. On further inquiries made by the Board, the Company informed that Rs. 15.50 is the forced sale value of disposing these shares in order to comply with regulatory requirements and Rs. 50 is the share valuation based on the market value of the assets of the investee company.

Since the above information was not adequately disclosed in the financial statements for the year ended 31st March 2003, the Board issued a direction to the Company to send a notification to all parties who received the annual audited financial statements explaining the above related party transaction.

W.M. Mendis & Company Limited
W.M. Mendis & Company Limited had not issued consolidated financial statements for the year ended 31st March 2003, consolidating the financial statements of Mendis Carbon (Pvt) Limited which became a subsidiary during the year. The auditors have not qualified their report in this respect.

Users of the financial statements of a parent of a group of companies need to be informed about the financial position, results of operations and changes in financial position of the group as a whole. This need is served by consolidated financial statements.

Company agreed to consolidate the financial statements of Mendis Carbon (Pvt) Limited and to issue consolidated financial statements of W.M. Mendis & Company Limited for the year ended 31st March 2004.

Statcon Limited
The Company had not accrued interest amounting to Rs. 1 million in respect of packing credit loans in its financial statements for the year ended March 31, 2003.

The auditors had qualified their report in this respect. On inquiries made by the Board, the Company informed the Board that they would accrue interest in respect of the above and reflect the same in financial statements for the year ended 31st March 2004.

Lanka Cement Limited
The factory of Lanka Cement Limited is located in Kankesanthurai in the high security zone. Due to security reasons, the factory location had been made out of bounds since June 1990. Apart from the factory site the company has a hotel site also in Kankesanthurai.

Financial statements of the company for the year ended 31st December 2002 included a balance of Rs. 1 billion as Inter-site current account under non current assets.

This was supported with a note stating that this balance represents the net assets of the factory and hotel site at cost and that the accuracy of the balance could not be verified. Therefore, the auditors have not formed an opinion on the financial statements.

The Board issued a direction to Lanka Cement Limited, to provide for the impairment in the carrying value of net assets relating to the factory and hotel site in Kankesanthurai and to reflect the changes in the financial statements for the year ended 31st December 2003.

Lee Hedges & Company Limited
The financial statements of Lee Hedges & Company Limited in respect of the year ended 31st March 2003 did not have a provision in respect of the irrecoverable portion of a debt of Rs. 76 million due from its subsidiary Viking Fashions (Pvt) Limited. Auditors have qualified their report in this regard.
Subsequent to inquiries made by the Board, the company made a provision of Rs. 45 million in respect of this debt in the financial statements for the year ended March 31, 2004.

Back to Business