Financial Reporting Environment in Sri Lanka

Pages: 8 (2467 words) Published: October 15, 2014

The purpose of this report is to investigate the current financial reporting environment in Sri Lanka and its impact on the companies listed on the Colombo stock exchange. Hotel SIGIRIYA PLC has been chosen to study the financial reporting requirements, cultural impacts and the political influences on the Sri Lankan listed companies.

1. Financial Reporting Environment in Sri Lanka
1.1. Current financial reporting requirements for publically listed companies in Sri Lanka. In August 2007, two stages were adopted by Sri Lankan accounting standards regulators to form the international Financial Reporting Standards (IFRS). They traversed from Stage I of IFRS Adoption to Stage III, due to the result of a “gap” between the international and national sets of standards in Sri Lanka. However, on 1 January 2012, the Institute of Chartered Accountants of Sri Lanka (ICASL) successfully adopted IFRS. (eStandards Forum, 2008, p. 5).

According to the Colombo Stock Exchange (2014) a requirement for a listed entity is that it must “ensure that the annual report is issued to the Entity’s shareholders and shall not exceed five (05) months from the close of the financial year of the Listed Entity when given to the Exchange”. Furthermore, publishing of the Audited Financial Statements must be in accordance with the Sri Lanka Accounting Standards. (Colombo Stock Exchange 2014 -Listing Rules s.7.5 pg4)

The Colombo Stock Exchange (2014) also requires an Interim Financial Statement prepared by the listed entity. The Financial Statement must comply with the Sri Lanka Accounting Standards (SLA) 35.

They must include:
Any group and company results in the case of a Holding Company. The additional notes and ratios as set out in Appendix 7B to the Rules. Signatures of the two Directors.
And must state that the Financial Statements are not audited. (Colombo Stock Exchange Listing Rules s.7.5 pg.5)
The preparation of a financial statement under IFRS, requires the following IAS 1.8 considerations: A Statement of Financial Position as the end of the reporting period A Statement of Comprehensive Income Statement, involving a Income statement and a separate Statement of Comprehensive income A Statement of Change in Equity

A Statement of Cash Flows
IFRS has recently undergone several modifications with the possibility of many more in the near future (IFRS -Application around the world p.4)

Recent modifications include:
IFRS 10 Consolidated Financial Statements: in regard to control, decision will be made upon whether the consolidated financial statement of a parent company should be included within an entity. IFRS 11 Joint Arrangements.

IFRS 12 Disclosure of Interests in Other Entities: disclosure will require other companies’ form of interest. IFRS 13 Fair Value Measurement: stipulate a more precise definition of fair value. IFRS 7 Financial Instruments: Disclosures and comparisons once required relating information but as of 1 January 2013 it no longer does.

1.2. Cultural influences on financial reporting in Sri Lanka.

According to oxford dictionary culture is defined as the ideas, customs and social behaviour of a particular people or society. Culture has become an important notion that would be expected to impact on legal systems, tax systems, and the way businesses are formed and financed, (Deegan2014, pp.136). In recent decades it has also been used to explain international differences in accounting systems. As we move towards the international accounting harmonisation it is vital to understand the influence that environmental factors such as culture have on the financial reporting.

The complexity of culture encouraged Hofstede to analyse and create four dimensions of national cultures such as Individualism, power distance, uncertainty avoidance and masculinity. However when countries are ranked on the basis of Hofstede’s five dimensions of national cultures a number of countries can be clustered...

Bibliography: Brandon Gipper, Brett Lombardi, and Douglas J. Skinner ,” The Politics of Accounting Standard-Setting: A Review of Empirical Research”, 2013, p.4.
Gray, S. J. 1988. ``Towards a Theory of Cultural Influence on the Development of Accounting Systems Internationally. ' 'ABACUS, p.11.
Deegan, C. (2002). The legitimizing effect of social and environmental disclosures: A theoretical foundation. Accounting, Auditing and Accountability Journal,15(3), p.292.
(eStandards Forum, 2008, p. 5)
(World Bank, 2004, p
World Bank. (2004). Sri Lanka: Report on the Observance of Standards and Codes – Accounting and Auditing.
Gunathilake W, Zoysa A, and Chandrakumara P (2011
Institute of Policy Studies (2005). Regulatory Impact Assessment: A Tool for Better Regulatory Governance in Sri Lanka, Colombo: Institute of Policy Studies.
Weerakoon, S. T. (1995). ‘Public Enterprise Pathology: Sri Lanka’s Experience in Perspective’, Asian Journal of Public Administration, 17(2), pp. 302-321.
La Porta, R., F. L. De-Silanes and A. Shleifer (1999). ‘Corporate Ownership Around the World’, The Journal of Finance, 54(2), pp. 471-517.
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