Financial Times

Regulation no panacea for all ills


Regulation is not a panacea to tackle fraud and all other negatives by some companies, according to a top capital market expert. "Regulation will not solve the entire gamut of issues (in relation to company frauds), but it will comply with the basic regulatory requirements," Channa De Silva, Director General Securities and Exchange Commission (SEC) said at a panel discussion organized by the Sri Lanka Institute of Directors (SLID) and the KPMG Audit Committee on Exploring Audit Committee Effectiveness.
He went on to say that this does not mean that 'basics are the best’. "Basics are there to bring everyone to a minimum threshold," he added.

He explained further saying that Fair Value Accounting (FVA) is used as 'Alice in Wonderland'. "With this companies go to the Disney World. This has to be taken more seriously," he added. Reyaz Mihular, Partner KPMG, another panelist noted that there are issues on consistency, methodology, guidance of the application on FVA. "Greater regulation, insightful, meaningful regulation is needed," he said, adding that better understanding of disclosure and risks are also needed.

He went on to say that materiality is not only quantitative, but also qualitative in accounting. "It is important for audit committees to request the auditors for items that they did not adjust in the accounts on the grounds of materiality, because they may become material in time to come.”

Nihal Fonseka, Chairman, Colombo Stock Exchange (CSE), noted that the CSE has not been able to ensure quality of 'audit committees’, in that 'audit committees have not been able to do what they are supposed to'. 'Just legislating and mandating (in this regard) will not work,” he added.

Marine Tharmaratnam, Chairman SLID, noted that if there were more institutional investors in companies, there will be more pressure on audit committees. "There are many firms where there are strong chairmen, directors and the ownership and management are the same. So there is a passive culture with regard to being educated on the audit committees," she added.

Ronnie Peiris, Group Finance Director, John Keells Holdings noted that an effective audit committee brings down the cost capital. Founding Partner KPMG India Sammy Medora, who was the keynote speaker said that audit committees need to have their 'noses in and their fingers out.' "It should not be a clubby lunch meeting where the members slap each other and disperse," he said. GCB Wijesinghe, a retired accountant, and an audit specialist noted that 'attitude is not technical, but moral' (with regard to audit committees). "We can get all systems, people and terms of reference in place, but if there is no inherent moral obligation there will not be a positive outcome to all this," he noted.

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