and accounting standards
The announcement by the Sri Lanka Accounting and Auditing Standards
Monitoring Board (SLAASMB) that some of Sri Lanka's top companies
had not maintained proper accounting standards in presenting their
financial statements appears to have ruffled quite a few feathers.
Predictably corporates are unhappy with the way some of them have
been singled out.
While some may
want to split hairs over the validity of the Board's action and
the gravity of the violations it has uncovered, the issue here is
whether corporates, which like to dress themselves up and present
themselves in the best possible light in their annual reports, have
been entirely honest and transparent in the way they have done their
firms with nothing to hide should not mind being as transparent
as possible, without disclosing information that would hurt their
business or give rivals an edge. It is only natural that the investing
public is sceptical about even minor violations in accounting practices
in an era where companies and their executives, who are treated
with near reverence in mature markets, are now found to have been
downright crooked as the Enron saga shows.
It is no secret
that in our own market some companies are known to be not entirely
honest. The talk is that many firms maintain two sets of books and
engage in all sorts of manipulative practices to show that they
are performing better than they actually are.
While the information
released by the SLAASMB does not appear to show grave violations
of accounting standards or criminal activity, fiddling the books
amounts to white colour crime. There is no reason why white-collar
criminals should be treated differently from blue collar ones. In
this context the SLAASMB's decision to name names in what appears
to be some kind of 'naming and shaming' policy is commendable and
would without doubt serve as a deterrent.
it would make others comply with the standards. In fact, we believe
the Board may actually have been somewhat lenient on those firms
that have not complied with the standards. They have merely been
allowed to get away by correcting their accounts in subsequent years.
They have not even been compelled to tell the investing public that
they have done so.
Where does this
leave investors, especially those small investors who do not have
access to inside knowledge that the professional market players
would undoubtedly have, or high-powered research accessible to their
richer counterparts? While the reasons for these companies to not
maintain proper accounting standards may be debatable - some have
claimed that they merely followed the industry practice as they
had done for years before the standards were drawn up and that they
need more time to comply with them - ultimately what matters is
feel companies are not maintaining proper accounts and that they
cannot be trusted to do so, and that the watchdogs, the auditors
also cannot be relied on, they are unlikely to have much faith in
the stock market from which corporates raise cheap funds.
concerns have to be considered, especially if it is the government's
and the business community's aim to make the island a 'share-owning
democracy' as we have repeatedly been told. This has not happened
- despite the broadbasing of share ownership in recent years, the
stock market still remains largely the preserve of a rich, clannish
It is all very
well for the market watchdog, the Securities and Exchange Commission,
to say that investors must make informed investments and not base
their decisions solely on information in annual reports. It is true
the authorities have to protect the interests of the investing public
while ensuring that they do not scare away the companies and big
players with too much regulation as some so-called high net-worth,
young and enthusiastic brokers seem to believe. There is a need
to balance the interests of the corporates and those of investors
whose money they need.