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| Sunday, 2 February 2003 |
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Business |  |
| News Business Features Editorial
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Paper, balanced and objective Biz Buzz by IRIS & AVED Dr Muthukrishna Sarvananthan, Research Fellow International Centre for Ethnic Studies presented a paper on 'What impedes economic revival in the North and East Provinces of Sri Lanka?' at the University of Jaffna last week. Lifting the economic embargo in January 2002 and opening the A9 highway in April have opened up trade between the North and the rest of the country. Consumers now have more goods at lower prices, but producers in LTTE areas (and Jaffna) receive much less for their produce. The opposite is true for producers of goods that find markets outside LTTE areas. Prices of such goods have increased, benefiting producers, but causing hardships to consumers. The paper criticised the taxes levied by the LTTE on goods and passengers passing through the A9 highway in territory it holds. He estimated Rs 5 million as the daily revenue earned by the LTTE from these taxes. On a conservative basis, he estimated a further tax revenue of Rs 2.5 million a day from levies made in the North and East. The freedom Dr Sarvananthan enjoyed and the courage he displayed in asking what the LTTE does with such tax revenue and why accounts are not published on the use of such funds were gratifying and admirable. Where the LTTE money went was a mystery, he said, when it was the Government of Sri Lanka that provided public and social services. The presence of two LTTE representatives in the audience did not deter Dr Sarvananthan from being critical about the LTTE. It needs a man of nerve and an objective and independent mind to say that the result of permitting the LTTE to engage in political work in Government-controlled areas in the N-E will include harassment of political opponents. LTTE taxes, uncertainty of laws in the jurisdiction of LTTE courts, the long delay in transporting through LTTE-held territory due to the checking and verification of goods and taxes levied, non-registration of businesses under Sri Lankan law, the resulting inability to raise bank borrowings and the nebulous state of the peace process were identified as major impediments for investment and economic growth. The exodus of the entrepreneurial class and educated persons from the N-E can also be attributed to these impediments. The other obstacle is the occupation of 30 per cent of the land in Jaffna by Government Forces as high security zones. A Navy Commodore who was present questioned the accuracy of the 30 per cent estimate. He explained the need to protect military zones and people from LTTE fire power and manpower that had substantially increased since the 1990-1995 period when the military presence was confined to the Palalay base. Dr Sarvananthan's paper was balanced and objective. It was based on facts and figures he had independently verified though estimates of the area occupied by high security zones may need some adjustment. The paper deserves greater consideration by the Government, LTTE and the people of Sri Lanka. Norwegians and others facilitating the peace process will find the analysis and recommendations relevant and valuable to their efforts. The Government and the LTTE as a first step should attempt to implement the 10 recommendations of Dr Sarvananthan which are summarised below. (1)Sri Lankan Armed Forces should reduce the size of high security zones in the N-E specially in Jaffna. It is also vital to withdraw fully from the Jaffna city centre to boost business. (11)Remaining restrictions on fishing in the area should be removed forthwith. (111)The A9 highway should be open 24 hours a day, seven days of the week. Checking of goods on the A9 should be restricted to two points (one by the Sri Lanka Army and the other by the LTTE) from the present four. (1v)Traders in the North-East should be able to directly engage in imports and exports. Imports from India directly to the Kankasanthurai and Point Pedro harbours would reduce transport costs. (V)Commercial banks in the area should be proactive in promoting business. (v1)The LTTE should refrain from taxing people. (v11)The LTTE should annually publish the donations and taxes they receive locally and from abroad and how they are expended. (v111)The LTTE should improve their governance. (1x)The LTTE should desist from undertaking economic activities and running a parallel administration. They should concentrate on what they have been doing successfully in the past two decades - defending the Tamil nation. (x)The LTTE should reform itself to qualify to solely represent the nation of Tamils. ---- Responses to Biz Buzz : Sri Lankan auditors, the protected species Every audit report of a specified business enterprise confirms that financial statements are prepared and presented to the shareholders in accordance with the Sri Lankan Accounting Standards. Non-compliance has to be reported by the auditor. However, in the context of the recent exposure by the Sri Lankan Accounting and Auditing Standards Monitoring Board (SLAASMB) that some audit firms have failed to report on non-compliance with accounting standards, the President of the Institute of Chartered Accountants of Sri Lanka (ICASL) had made a statement exonerating the auditors from any negligence. The fact is if the auditors fail to report that a company has failed to comply with an accounting standard, the audit had not been conducted in accordance with the Sri Lankan Accounting Standard and therefore, the auditor is negligent in the discharge of his duties. Unfortunately, the President of the ICASL disagrees, fortunately for the auditors. When errors in financial statements are not detected by them, auditors could give numerous dubious excuses to exonerate themselves. Unfortunately, there is absolutely no excuse auditors could give, when they do not report that a company had failed to comply with accounting standards. You either comply or do not comply with a standard. But the ICASL President states that compliance depends on materiality. He adds more confusion to the minds of those who are struggling to comply with the accounting standards promulgated by ICASL. The SLAASMB officials who have reported non-compliance, make their observations based on the same information available to the auditors of the company, or even on less information. How does an auditor explain the detection of non-compliance by SLAASMB, when the auditor has failed to do so? Whether the defaulting auditors exposed by SLAASMB will be brought to book is anybody's guess, considering the conflict of interest all round; ICASL, SLAASMB and the protected species, the Sri Lankan auditors. The Securities and Exchange Commission should at least ensure that laws are in place to prevent incompetent auditors being re-appointed by quoted companies. Gone are the days when members of ICASL were appointed to the director boards of all leading private sector companies. The ICASL, in particular the Council, should find out the reasons for the loss of confidence of the business community in their membership. Small Investor **** The role of auditors After the Enron scandal in USA, various accusations have been levelled at auditors. Most of these accusations are baseless and without grounds. An erosion in the faith and confidence placed by the public in the role of an auditor may not be in the larger interest of the nation. Therefore, it is high time to set the record straight. Now it has become a common practice to point fingers at the auditors for whatever financial frauds or irregularities taking place in the corporate world on the grounds that they failed to detect and report such frauds or irregularities. In this respect, those who blame the auditors should bear in mind two things: 1. Auditors are not detectives. Historically the auditor has played the role of a watchdog and not a bloodhound. Therefore, the annual statutory audit is not specifically designed to detect frauds and irregularities. However, when an audit is conducted in accordance with recognised auditing standards, certain frauds and irregularities will be revealed. Further, the audit serves as a strong deterrent against frauds and irregularities. Therefore, if not for independent audit, there might be daylight robberies at some of our institutions. 2. The auditor has to express his opinion based on recognised auditing standards. He cannot do this according to the whims and fancies of certain stakeholders. The wording of any qualification in an audit report itself can cause a run on a bank or collapse of a company. As such, the auditor will not jump to conclusions in preparing his report. Instead he will have to exercise a lot of skill, care and caution in expressing his opinion. Further, in the process of tax collection, revenue authorities place considerable reliance on audited statements of accounts. The auditor normally would not certify or express an opinion on a set of accounts without examining the books of accounts and the underlying key documentation. If there is no audit, loads of books and documents will have to be taken to the Department of Inland Revenue for scrutiny. Will the staff and space of the Department be sufficient to do this? Will this be practically feasible? Therefore, it is obvious that the revenue collection function of the State will inevitably collapse in the absence of auditors. The audit officers attached to the Auditor General's Department risk their lives and limbs to safeguard public funds. If not for the good work of these officers, accountability for public funds will become a mockery. In these circumstances, any criticisms levelled at auditors must be done in a more professional and responsible manner. S. A. Azeez Kalubowila |
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