In the wake of the Enron scandal which hit the United States in the early part of the decade, several high profile Sri Lankans in the business community weighed in on how similar situations of fraud and corruption might permeate local businesses. However, the business community so far has remained silent after the damning findings in the July 2008 Supreme Court judgment on Lanka Marine Services Limited (LMSL) which implicated now former Treasury Secretary Dr. P.B. Jayasundera and Chairman of John Keells Holdings (JKH) Susantha Ratnayake.

In The Sunday Times FT articles in 2001 and 2002, this is what some had to say on ethics in the local business community and the accounting scandal which brought down oil giant Enron. Although the LMSL privatization which is now null and void is not an accounting scandal, the comments of these business leaders is relevant in the bigger context of business ethics, even in cases like the Sri Lanka Insurance Corporation (SLIC) privatization in which large scale accounting improprieties have been alleged:
** Chandra Jayaratne, former head of the Ceylon Chamber of Commerce (CCC) and former Managing Director of Eagle Insurance slammed the business community in 2001, saying it was corrupt, unethical and not transparent. Jayaratne said a major fault of the business community was that they do not care for and spend very little on social development. "If the business community needs to rebuild public trust, they've got to be responsible to the society as a whole, and must adopt and employ independent analysis and accept media reviews of their conduct," he said. Jayaratne further criticized the business community by saying that they were not accountable for the investments they undertake, are networked among themselves and are corrupt, unethical and not transparent. He was addressing a CCC seminar on 'Rebuilding Public Trust: Opportunities for the Business Community.'

At the same seminar, the director general of the Securities and Exchange Commission (SEC) Dr. Dayanath Jayasuriya said the business community should have the courage to admit mistakes and not jeopardize their profession. "If anyone in a decision making position has the slightest doubt of conflict of interest, it is better not to participate" in meetings where such conflicts arise,” he said.

Speaking of the lessons the Sri Lankan business community could learn from global business at the same seminar in 2001, Sujeewa Mudalige, Partner, Pricewaterhouse Coopers said that with the collapse of firms like Enron and WorldCom, the US government has responded with tough new laws and tougher enforcement. Sri Lanka, before facing such catastrophes should bring in laws and put public confidence on a firm footing. Laws such as the Sarbanes-Oxley Act of 2002, the most far reaching legislation affecting the financial services, accounting, auditing, financial reporting and professional services firms should be introduced, he said. "In the US the regulators such as SEC commissioners give up their personal interests as soon as they are appointed to the regulatory bodies. In Sri Lanka we've got many commissioners as some commissioners have conflicts of interest and cannot participate in decision-making with regard to certain companies."

***One stockbroker noted back in 2002 that it is just a matter of time before ‘we’ have an Enron type drama in Sri Lanka. Although accountancy professionals and the corporate sector maintain that accounting standards are generally high, many companies are known to have a penchant for covering up losses. However, hard evidence is difficult to find.

***A management specialist, who declined to be identified, spoke of how a top local conglomerate lost millions in a fraud by an accountant but hid the losses from shareholders through dexterous accounting to avoid exposure. Shareholders often complain of dodgy accounting and various ruses used to hide exorbitant costs and keep profits up. One businessman said that doctoring accounts is common practice and has led to company crashes here.

***Dr. Dayanath Jayasuriya, director-general of the Securities and Exchange Commission (SEC) said they were looking at possible implications of the Enron issue. "We have checks and balances in place but we need to study this issue." He said another issue being looked at is whether audit firms should be allowed to audit accounts and handle consultancies at the same place and at the same time.

***Other SEC officials said that though there are audit committees in 20 listed companies their effectiveness is a problem. "We don't know how effective they are as they are still internal committees," one official said adding that under the Companies Act directors can report total emoluments and not provide details.

***Asitha Talwatte, Pesident of the Institute of Chartered Accountants of Sri Lanka (ICASL), said that under the principles followed here, the issue where Enron faulted would have been "trapped and reported in the accounts." He added: "I don't think there is a lacuna in our standards."

***Reyaz Mihular, former President of ICASL and chief of the institute's Accounting Standards Committee said Sri Lanka has world class accounting standards and a high level of professionalism. He said the Enron issue in the US reflected a breakdown in etics. "We are professionals and the society respects us for that. One would be morally bankrupt to attempt what happened in the Enron case," he said. However, he added, having high standards does not mean the system is foolproof.

***Ajith Ratnayake, director general of the Sri Lanka Auditing and Accounting Standards Monitoring Board, said that the management of some firms may sometimes want to show a financial position different to the true and fair view. This could be due to an attempt to increase the firm's share value, show a picture of good stewardship, obtain favourable terms from banks or reduce incidence of tax. The adoption of accounting standards and auditing of enterprises by professionally qualified independent auditors is a means of controlling such creative accounting practices, he said. However, auditors may sometimes come under pressure from management to permit creative accounting practices.