Most companies are working under the "illusion" that new Sri Lanka Accounting Standards, which comprise Sri Lanka Financial Reporting Standards (SLFRSs) and are equivalent to International Financial Reporting Standards, are not very different from existing standards. But nothing is further from the truth, according to accountant, Ernst & Young's Assurance Practice Leader Manil Jayasinghe.
Additionally, he noted that this conversion to SLFRSs would be the "biggest governance challenge facing most of the listed companies in Sri Lanka in recent times," and that "a handful of companies have commenced work on the conversion."
Further, he suggested that "key issues for boards and CEOs is how to monitor the quality and integrity of companies’ internal conversion process, and how to ensure that the communication to investors of the impact of SLFRS on reported results does not have an adverse share price impact that is not justified by the underlying facts."
Mr. Jayasinghe's comments were part of a statement by Ernst & Young which noted that "Sri Lanka Financial Reporting Standards is mandatory for all entities from 01st January 2012. This has given rise to a number of concerns regarding the impact of the new principles on operations of the entity’s and how they will be reflected in the financial statements. Managing expectations of shareholders, employees, financial analysts, and maintaining debt covenants will be some of the key issues in 2012 for most CEOs."
Also revealed in the statement was that the "fact that many of the standards are new, and the interpretations and guidance on them are evolving further complicates the matter and increases the implementation risk, while the increased earning and equity volatility that arises from the fair value approaches required by the standards increases the investor relations risk." The following three areas were also suggested as future challenges for companies to the timely adoption of these standards:
"Application of accounting standards require input from various business units as opposed to the traditional method of application of accounting standards by the finance department"; "Currently entities apply accounting requirements to the trial balance in preparing financial statements. With the new accounting standards this will not be feasible. It will be necessary to re-engineer business processes and IT systems to capture data at the initiation of transactions"; "The application of certain accounting principles will heavily involve expertise in order to comply with measurement requirements."