Transparency 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 accounts.

Well-managed 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.

Hopefully, 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 public perception.

If investors 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.

These investors' 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 elite.

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.

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