Sri Lanka

Corporate financial reporting requirements in Sri Lanka are outlined in several laws, which include the Companies Act No. 7 of 2007, Securities and Exchange Commission Act No. 36 of 1987, Banking Act No. 30 of 1988, Finance Business Act of 2012, Regulation of Insurance Industry Act No. 27 of 2011, Inland Revenue Act No. 9 of 2015, Microfinance Act No. 6 of 2016, Finance Act No. 38 of 1971, and Accounting and Auditing Standards Act No. 15 of 1995.

The Companies Act No. 7 of 2007 establishes financial reporting requirements and audit requirements for companies incorporated under the Act; however, the Act does not specify the applicable standards.

The Accounting and Auditing Standards Act No. 15 of 1995 requires specified business enterprises (SBE) to prepare financial statements in compliance with accounting standards as set by the Institute of Chartered Accountants of Sri Lanka (CA Sri Lanka). The institute has adopted the Sri Lanka Financial Reporting Standards (SLFRS). SLFRS are developed based on the 2013 version of the International Financial Reporting Standards (IFRS), with modifications. CA Sri Lanka has also adopted IFRS for SMEs as SLFRS for SMEs. All companies other than SBEs, defined below, can apply SLFRS for SMEs.

SBEs in Sri Lanka are defined in the Accounting and Auditing Standards Act as: companies listed on the stock exchange, banks, insurance companies, factoring companies, finance companies, leasing companies, unit trusts, fund management companies, stockbrokers and stock dealers, stock exchanges, public corporations engaged in the sale of goods or the provision of services, and non-listed companies that meet the following criteria: annual turnover in excess of LKR 500 million, shareholders equity in the excess of LKR 100 million, gross assets in excess of LKR 300 million, liabilities to banks and other financial institutions in excess of LKR 100 million, and staff in excess of 1,000 individuals.

The Accounting and Auditing Standards Act No. 15 of 1995 stipulates mandatory audits for all SBEs. The act specifies that only Chartered Accountants (CAs), members of CA Sri Lanka with a Certificate to Practice, are authorized to perform audits following auditing standards as set by CA Sri Lanka. Under the same legislation, CA Sri Lanka is also empowered to set auditing standards in the country and the institute has adopted the Sri Lankan Auditing Standards (SLAuS). SLAuS are developed based on the 2013 version of the International Standards on Auditing (ISA) with modifications due to local laws.

In addition to financial reporting requirements set in the Accounting and Auditing Standards Act and Companies Act, requirements for certain SBEs are also established under other relevant laws:

• The Securities and Exchange Commission Act No. 36 of 1987 establishes financial reporting requirements for companies listed on the stock exchange and recognizes the Securities and Exchange Commission as the regulator for all listed companies.
• The Banking Act No. 30 of 1988 stipulates financial reporting requirements for all banks and recognizes the Central Bank of Sri Lanka (CBSL) as the regulator of the banking sector. The CBSL also regulates licensed finance companies, established under the Finance Business Act of 2012, and microfinance companies, created under the Microfinance Act No. 6 of 2016.
• The Regulation of Insurance Industry Act No. 27 of 2011 mandates financial reporting requirements for all insurance companies and recognizes the Insurance Board of Sri Lanka as the regulator for insurance companies.

The three professional accountancy organizations and the Sri Lanka Accounting and Auditing Standards Monitoring Board (SLAASMB) share responsibility for regulating the accountancy profession in Sri Lanka.

Under the Chartered Accountants Act No. 23 of 1959, the Institute of Chartered Accountants of Sri Lanka (CA Sri Lanka) is responsible for establishing initial professional development (IPD) and continuing professional development (CPD) requirements for Chartered Accountants; setting accounting, auditing, and public sector accounting standards; setting ethical requirements for Chartered Accountants; and the operation of an investigative and disciplinary system for its students and members. CA Sri Lanka is also the licensing authority for auditors in Sri Lanka as only members of CA Sri Lanka can conduct audits. It is important to note that in addition to being a member of CA Sri Lanka, auditors are also required to be registered with the Registrar of Companies in accordance with the Companies Act of 2007.

Furthermore, CA Sri Lanka members that are auditors of specified business enterprises’ (SBEs) are also subject to supervision of the SLAASMB, which was established under the Sri Lanka Accounting and Auditing Standards Act No. 15 of 1995 to monitor and enforce compliance with accounting and auditing standards and oversee audit quality in the financial statements of SBEs. Its functions include: (i) monitoring compliance with accounting and auditing standards; (ii) conducting on-site reviews of audit firms to determine compliance with auditing standards and other applicable requirements, including the Code of Ethics; (iii) establishing preventive measures for ensuring that audit firms have adequate quality assurance arrangements; and (iv) implementing adequate investigation and disciplinary proceedings, accompanied by appropriate sanctions. All SBEs are required to submit annual audited financial statements to the SLAASMB.

Under the Institute of Certified Management Accountants of Sri Lanka Act No. 23 of 2009, the Institute of Certified Management Accountants of Sri Lanka (CMA Sri Lanka) was established to regulate the Certified Management accounting profession. CMA Sri Lanka’s mandate includes: (i) serving as a professional organization for management accountants, (ii) establishing management accounting standards, as well as standards of professional conduct and ethics for members, (iii) initiation and oversight of a certification program for management accountants, and (iv) establishing and regulating professional education and training programs, including CPD.

Registered under the Companies Act No. 7 of 2007, the Association of Accounting Technicians of Sri Lanka (AAT Sri Lanka) is responsible for administering the Accounting Technician qualification and monitoring the conduct of Accounting Technicians in Sri Lanka. AAT Sri Lanka has established IPD, CPD, and ethical requirements for its members and put in place an investigative and disciplinary mechanism as well.

The Sri Lanka Accounting and Auditing Standards Monitoring Board (SLAASMB) was established under the Accounting and Auditing Standards Act No. 15 of 1995 as an audit oversight entity. Its functions include: (i) monitoring compliance with accounting and auditing standards; (ii) conducting on-site reviews of audit firms to determine compliance with auditing standards and other applicable requirements, including the Code of Ethics; (iii) establishing preventive measures for ensuring that audit firms have adequate quality assurance arrangements; and (iv) implementing adequate investigation and disciplinary proceedings, accompanied by appropriate sanctions. To implement its mandate, the SLAASMB carries out independent reviews of audits at the engagement level using a sample of the submitted audited financial statements. It is also empowered to summon auditors, calling for the production of documents including working papers, and requiring auditors to provide information and explanations. Under the Act, the SLAASMB may investigate violations and report them to the respective professional accountancy organizations in the country to take appropriate actions. The Sri Lanka Accounting and Auditing Standards Act No. 15 of 1995 stipulates penalties, including jail sentences, for non-compliance with accounting and auditing standards by specified business enterprises’.

The SLAASMB is a member of the International Forum of Independent Audit Regulators.

There are three national accountancy organizations in Sri Lanka.

Institute of Chartered Accountants of Sri Lanka (CA Sri Lanka)

CA Sri Lanka was founded in 1959 by the Act of Parliament No. 23 and is the largest professional accountancy organization in Sri Lanka. CA Sri Lanka is responsible for establishing initial professional development and continuing professional development (CPD) requirements for Chartered Accountants; setting accounting, auditing, and public sector accounting standards; setting ethical requirements for Chartered Accountants; and the operation of an investigative and disciplinary system for its students and members. CA Sri Lanka is also the licensing authority for auditors in Sri Lanka as only members of CA Sri Lanka can conduct audits. It addition to its role as the national accounting and auditing standard-setter, CA Sri Lanka provides professional and technical knowledge and guidance to its members and states that it acts in the benefit of public interest. Only licensed qualified members of the institute, who are also licensed by the Registrar of Companies, are permitted to conduct audits of Specified Business Enterprises. In addition to being a member of IFAC, CA Sri Lanka is a member of the South Asian Federation of Accountants (SAFA), and the Confederation of Asian Pacific Accountants (CAPA).

Institute of Certified Management Accountants of Sri Lanka (CMA Sri Lanka)

CMA Sri Lanka was established in accordance with the Institute of Certified Management Accountants of Sri Lanka Act No. 23 (2009). CMA Sri Lanka’s mandate includes: (i) to serve as a professional organization for management accountants, (ii) establishment of management accounting standards, as well as standards of professional conduct and ethics for members, (iii) initiation and oversight of a certification program for management accountants, and (iv) establishment, and regulation of professional education and training program, including CPD. The Certified Management Accountant designation is issued by CMA Sri Lanka. In addition to being a member of IFAC, CMA Sri Lanka is a member of CAPA and SAFA.

Association of Accounting Technicians of Sri Lanka (AAT Sri Lanka)

AAT Sri Lanka is registered under the Companies Act No. 17 of 1987 and re-registered under the Companies Act No. 7 of 2007, as a company limited by guarantee. AAT Sri Lanka provides education and training to students to become accounting technicians, and promotes the interests, welfare, rights and privileges of the profession of accounting technicians. AAT Sri Lanka was admitted as an IFAC Associate in 1989, and is also a member of CAPA.

Only members of the Institute of Chartered Accountants of Sri Lanka (CA Sri Lanka) are authorized to conduct audits of public interest entities also known as specified business enterprises.

While the Sri Lanka Accounting and Auditing Standards Monitoring Board is charged with monitoring compliance with applicable auditing standards, CA Sri Lanka is responsible for implementation of a QA system in the country in accordance with the Sri Lanka Accounting and Auditing Standards Act No.15 (1995).

In 2009, CA Sri Lanka established an Audit Quality Assurance Board (QAB), which is responsible for overseeing the QA functions of the institute. The QAB is independent of the CA Sri Lanka Council and is represented by all key regulators in the country. With support from the World Bank and the Institute of Chartered Accountants in England and Wales, the institute launched its voluntary Audit Quality Assurance (AQA) Program in 2013.

CA Sri Lanka’s initial reviews focused on whether firms had established policies and procedures in compliance with SLSQC 1—the quality control standards that CA Sri Lanka has adopted based on the 2013 version of ISQC 1. As of 2017, the AQA program continues to be voluntary, is not incorporated in any law, and it is unclear if the program is in line with the requirements of SMO 1.

Current Status: Partially Adopted

In Sri Lanka, initial professional development (IPD) and continuing professional development (CPD) requirements for professional accountants are established by the three professional accountancy organizations in the jurisdiction: the Institute of Chartered Accountants of Sri Lanka (CA Sri Lanka), the Institute of Certified Management Accountants of Sri Lanka (CMA Sri Lanka), and the Association of Accounting Technicians of Sri Lanka (AAT Sri Lanka).

Under the Institute of Chartered Accountants Act No. 23 of 1959, and per the regulations of the CA Sri Lanka Council, CA Sri Lanka is responsible for establishing mandatory IPD requirements for its students and CPD requirements for its members. In general, CA Sri Lanka’s IPD and CPD program is considered rigorous and incorporates a majority of the IES. However, gaps exist in CPD as reported in the 2015 World Bank Report on the Observance of Standards and Codes and it is unclear if steps have been taken to address these gaps.

Under the Institute of Certified Management Accountants of Sri Lanka Act No. 23 of 2009, CMA Sri Lanka is responsible for establishing IPD requirements for its students and CPD requirements for its members. In 2012, CMA Sri Lanka revised its certification program’s syllabus along with practical experience and CPD requirements in order to improve alignment with IES; however, it is unclear if the program in place is aligned with the full requirements of the IES.

Lastly, AAT Sri Lanka develops IPD requirements and CPD requirements for its members. As of November 2017, AAT Sri Lanka reports that overall its program is in line with the requirements of the 2015 IES.

Current Status: Partially Adopted

Under the Sri Lanka Accounting and Auditing Standards Act No. 15 of 1995, the Institute of Chartered Accountants of Sri Lanka (CA Sri Lanka) is responsible for setting applicable auditing standards for the country.

As of November 2017, CA Sri Lanka has adopted the 2013 version of the ISA as Sri Lanka Auditing Standards with modifications due to national requirements. Where modifications to ISA were necessary to incorporate national legal and regulatory requirements.

CA Sri Lanka reports that plans are underway to adopt the latest ISA. ISA in the jurisdiction are translated by CA Sri Lanka into Sinhala and Tamil, the official languages.

Current Status: Partially Adopted

In Sri Lanka, ethical requirements for professional accountants are established by the three professional accountancy organizations (PAOs): the Institute of Chartered Accountants of Sri Lanka (CA Sri Lanka), the Institute of Certified Management Accountants of Sri Lanka (CMA Sri Lanka), and the Association of Accounting Technicians of Sri Lanka (AAT Sri Lanka). As per the respective rules of the three PAOs, adhering to ethical requirements is mandatory for all professional accountants.

CA Sri Lanka and AAT Sri Lanka report that their respective codes is aligned with the 2016 IESBA Code of Ethics while CMA Sri Lanka indicates its Code is in line with the 2010 IESBA Code of Ethics. It is unclear if CMA Sri Lanka has plans to adopt the latest IESBA Code.

Current Status: Partially Adopted

Prior to 2015, the General Treasury, Ministry of Finance and Planning, and Line Ministries were responsible for establishing accounting standards for the public sector. The Institute of Chartered Accountants of Sri Lanka (CA Sri Lanka’s) role was to collaborate with the aforementioned bodies to adopt the standards.

In 2015, the Sri Lanka Accounting and Auditing Standards Act No. 15 of 1995 was revised and amendments empowered CA Sri Lanka to issue public sector accounting standards in Sri Lanka in joint partnership with the Ministry of Finance and Planning. Since 2011, CA Sri Lanka has been issuing Sri Lankan Public Sector Accounting Standards (SLPSAS) as the standards to be applied by all non-commercial public corporations, state-owned enterprises, Ministries, Departments, and Local Authorities.

Since 2016, 20 IPSAS have been adopted as SLPSAS. Minor modifications have been made to IPSAS, including changing the name to SLPSAS and deleting paragraphs not applicable to Sri Lanka. However, CA Sri Lanka reports that no material modifications were made.

It is unclear if there are plans to adopt the complete suite of IPSAS.

Current Status: Partially Adopted

All professional accountants in Sri Lanka are subject to investigative and disciplinary (I&D) procedures established by the three professional accountancy organizations (PAOs)—the Institute of Chartered Accountants of Sri Lanka (CA Sri Lanka), the Institute of Certified Management of Accountants of Sri Lanka (CMA Sri Lanka), and the Association of Accounting Technicians of Sri Lanka (AAT Sri Lanka)—as per the institutes’ respective rules and regulations. Additionally, auditors of specified business enterprises’ (SBEs)—who must be members of CA Sri Lanka—are also subject to I&D procedures of the Sri Lanka Accounting and Auditing Monitoring Board (SLAASMB).

CA Sri Lanka’s I&D system is established in the Act of Incorporation and Regulations of the institute. Details on the types of misconduct and disciplinary procedures are outlined in the Acts of Professional Misconduct in the Act of Incorporation. CA Sri Lanka reports that its system is operational and incorporates most of the requirements of SMO 6.

The Institute of Certified Management Accountant Act No. 23 of 2009 grants authority to CMA Sri Lanka to ensure members’ compliance with applicable standards and the Code of Ethics and professional conduct. To that effect, the institute has established an I&D system for its members. The institute has an Ethics and Disciplinary Committee and a Disciplinary Appeal Board in place, and its rules and regulations include sanctions for non-compliance. CMA Sri Lanka indicates its I&D system was developed and operates in line with the requirements of SMO 6.

AAT Sri Lanka is responsible for establishing an I&D mechanism for its members. As of November 2017, the association reports that its overall program is now in line with the requirements of SMO 6.

Auditors of SBEs—who must be members of CA Sri Lanka—are also subject to I&D procedures of the SLAASMB. Under the Sri Lanka Accounting and Auditing Standards Act No. 15 of 1995, the SLAASMB may investigate violations and report them to the respective PAOs in the jurisdiction to take appropriate actions.

Current Status: Partially Adopted

Under the Accounting and Auditing Standards Act No.15 of 1995, the Institute of Chartered Accountants of Sri Lanka (CA Sri Lanka) is responsible for setting accounting standards in Sri Lanka and has adopted the 2013 IFRS with modifications as the Sri Lankan Financial Reporting Standards (SLFRS).

SLFRS comprise IAS standards, IFRS standards, and interpretations from the IFRS Interpretations Committee (IFRIC) and Standards Interpretations Committee, they also include: Statements of Recommended Practices; Statements of Alternate Treatment; and Financial Reporting Guidelines issued by CA Sri Lanka. In regards to the adoption of IFRS 7 Financial Instruments: Disclosures as Sri Lanka Financial Reporting Standard (SLFRS) 7, Sri Lanka did not require comparative information for periods beginning before January 1, 2013 whereas IFRS 7 requires such information. According to the IFRS Foundation, this was considered a transitional relief rather than a modification to IFRS 7. Sri Lanka has adopted an alternative treatment with respect to accounting for a new ‘super gain tax’ that is required by Sri Lankan law but that is inconsistent with a paragraph in IAS 12 Income Taxes.

Under the Accounting and Auditing Standards Act, all specific business enterprises (SBEs) are required to apply SLFRS as established by CA Sri Lanka. Companies that are not SBEs may apply SLFRS for SMEs, which is based on IFRS for SMEs. SLFRS and SLFRS for SMEs are translated into Sinhala and Tamil and per the IFRS Foundation, the translation process allows for ongoing updates when the International Accounting Standards Board makes revisions.

Current Status: Partially Adopted

Relevant Organizations

• Association of Accounting Technicians of Sri Lanka (AAT Sri Lanka)
• Institute of Chartered Accountants of Sri Lanka (CA Sri Lanka)
• Institute of Chartered Management Accountants of Sri Lanka (CMA Sri Lanka)
• Ministry of Finance and Planning—Sri Lanka
• Sri Lanka Accounting and Auditing Standards Monitoring Board (SLAASMB)

Relevant Legislation

• Act of Incorporation and Regulations of the Institute of Chartered Accountants of Sri Lanka
• Institute of Certified Management Accountants of Sri Lanka Act No. 23 (2009)
• Institute of Chartered Accountants of Sri Lanka Act No. 23 (1959)
• Sri Lanka Standard on Quality Control 1, January 2013
• Sri Lanka Banking Act No. 30 (1988)
• Sri Lanka Companies Act No. 07 (2007)
• Sri Lanka Securities and Exchange Commission Act No. 36 (1987)
• Sri Lanka Accounting and Auditing Standards Act, No. 15 (1995)

Relevant Publications

• AAT Sri Lanka, SMO Action Plan, November 2017.
• CA Sri Lanka, SMO Action Plan, November 2017.
• CMA Sri Lanka, SMO Action Plan, November 2017.
• IFRS Foundation, “IFRS Application around the World—Jurisdiction Profile: Sri Lanka,” June 2016.
• International Forum of Independent Audit Regulators (IFIAR) Member Profile—Sri Lanka.
• Sri Lanka Accounting and Auditing Standards.
• World Bank, Report on the Observance of Standards and Codes (ROSC)—Accounting and Auditing (A&A): Sri Lanka, 2015.