SLAASMB chief's main concern:

Adopting new international auditing standards

The following is an interview with the Director-General, Sri Lanka Accounting and Auditing Standards Monitoring Board, Ajith Ratnayake FCMA

You helped to set up the Sri Lanka Accounting and Auditing Standards Monitoring Board (SLAASMB) in 1998.

What did that involve?

Ajith Ratnayake

It was a great opportunity. I became the boards's first Director - General. It was possible the first independent regulator in the world set up to monitor compliance with both financial reporting and auditing standards. Establishing the board involved forming a secretariat, recruiting people, training them and setting up procedures for monitoring.

What are the board's priorities at present?

Sri Lanka's accounting standards are converging with the latest version of IFRS. We're also adopting the new set of international standards on auditing, based on IFAC's project to bring greater clarity to them. Technical competence is the most important attribute that the SLAASMB's stakeholders expect from the board and each member of its technical staff, so we're all developing the necessary knowledge to deal with issues arising from the latest set of standards. I'm personally responsible for competence-building in relation to the standards on financial instruments: IAS32, IAS39, IFRS7 and IFRS9.

How do you foresee financial regulations developing in your region in the longer term?

At present, Sri Lanka is the only country in South Asia that has an independent audit regulator. The secretary to India's ministry of corporate affairs visited our office recently and I discussed the benefits of such a body with him. At the first formal session of the international Forum of Independent Audit Regulators, held in 2007, there were 23 regulators. Today the forum has 35 members and it's likely that more countries will set up independent regulators for accounting and auditing.

How has business in Sri Lanka been affected by the global financial crisis?

Sri Lanka had a GDP growth rate of 3.5 per cent last year, indicating that we fared relatively well during the crisis. Our financial institutions didn't hold a significant amount of toxic assets based in the worst affected countries, although our businesses were affected by a reduction in export volumes.

There has been a resurgence in business confidence since the end of the

civil war in 2009, which also opened up hitherto unused parts of the country to economic activity. This confidence was reflected in Sri Lanka's stock market, which saw a growth rate of 125 percent in 2009, the second highest in the world.

Are there any issues facing the SLAASMB that you see as unique to Sri Lanka?

Agriculture constitutes about one-eighth of Sri Lanka's economy. Maintaining the integrity of financial reporting in this sector is vital to our country.

What value can CIMA accountants add to Sri Lanka's businesses and regulatory framework?

Financial reporting was based on historical cost. Today, fair value is increasingly used in financial reporting.

The fair values themselves are closer to the values that management accountants use when analysing investment decisions. This trend enhances the opportunities for CIMA professionals to contribute to both decision-making and financial reporting.

What are the main issues facing accountants worldwide - and what should the profession do to address them?

The key task seems to be to re-establish the integrity of what accountants do. In the early eighties, when I once pointed out that I had not been charged on a bill for items I'd received from a hotel in India, the hotel staff asked me whether I was an accountant. Today, people wonder whether the financial statements produced by accountants show the truth. The profession needs to focus on the ethical aspect of its work, institutes should instil a culture of integrity among students and members. Accountancy firms should establish an appropriate tone at the top to ensure that, when professional judgments is exercised, it is done with truth and fairness as the main goal.

In the hope of limiting the chances of another global crash, regulators worldwide are working out how to ensure that reporting is fair and accurate. What's the SLAASMB's approach?

The board uses a focused risk-based approach to monitoring. This involves identifying high-risk entities and industries in terms of the potential for non-compliance and the significance of its possible effect on the public. Focused monitoring should improve the reliability of financial reporting in these entities. This would facilitate the early detection of potential problems. But improved reporting cannot prevent global crashes caused by asset price bubbles, excessive debt and other high-risk conditions.

Is there anything you'd like other nations' regulatory bodies to do make the global economy less vulnerable?

High risk in apparently sound economies comes from two aspects: high gearing and misleading reporting. High gearing is facilitated by the excessive use of securitisation, derivatives. Regulators must ensure that economies and entitles don't get disproportionately geared by the overuse of these exotic instruments. Misleading reporting can increase systemic risks. Sometimes those involved are experts who try to mislead regulators into accepting their interpretations, so regulators need knowledgeable and capable staff to meet such challenges.

What advice would you offer to CIMA professionals just starting their careers?

Our success depends on whether society wants you. Society will want you if you serve it, So make your best effort to contribute to the success of your team, your company, your country - and the world.

What advice would you give nations thinking of forming their own monitoring boards? Would you do anything differently if you had to set yours up again?

SLAASMB members are either ex-officio members by virtue of having other key roles - eg. In the Securities and Exchange Commission - or nominees from stakeholder institutions. The chairman has always been a high-ranking official in the central bank. There are no party-political appointments. I would recommend this model.

Initially we used detailed checklists to identify all areas of non-compliance with financial reporting standards. Later we focused on identifying the most significant issues. If I had to do it all again, I would avoid going through the phase of identifying every area of non-compliance, irrespective of its significance.

You're also involved with IFAC's International Auditing and Assurance Standards Board (IAASB).

In light of the big financial scandals earlier in the decade, IFAC reformed its standard setting process. As a part of this, the consultative advisory group of the IAASB was to comprise institutions representing the public interest. The group consists mainly of global bodies, such as the World Bank and the International Accounting Standards Boards. The SLAASMB is one of the few national institutions on it.

When we joined, we were also the only independent regulator of auditors in the group. We are still the only member representing South Asia.

What do you do on a typical working day?

My work changes so much that there is no typical day, except that I usually leave the office at about 8 p.m. It depends on the priorities of the moment, but my regular jobs include analysing new material issued by international standard-setting bodies, advising staff on technical issues, attending meetings, preparing presentations and attending to correspondence.

Is this the kind of role that you always knew you wanted, or did your interest in regulation develop later?

Standards regulations didn't exist at the time I qualified as an accountant, but I was always interested in the technical side and got involved in setting standards early in my career.

When I played cricket as a boy, umpiring was my favourite role. The umpire would always be a member of the batting side, but both teams knew that I always made a fair decision.

Is there an ideal personality type for an accountant?

The aspects of personality that play an important role depend on the specific nature of the work, but all accountants should act ethically. Sometimes an accountant may find that being unethical is more advantageous, but such advantages are temporary and certainly aren't worth the risk. A life with clean hands is more satisfying.

Quick CV

1980-82

Ratnayake starts his career as a control officer at American Express Bank, but is soon recruited by the government owned Colombo Gas and Water Company as a finance manager.

1982-90

Joins the Stafford Group of Companies as a corporate planning manager, becoming group FD in 1984 and assuming the additional role of managing director at Felix Printers in 1989.

1990-94

Moves to Fiji to become financial controller and company secretary at Golden Manufacturers, a joint venture part-owned by US multinational international Paper.

1994-97

Joins Vodafone Fiji as financial controller and company secretary. In 1996 he also takes on the role of quality control manager.

1998-

Returns to Sri Lanka to help establish the SLAASMB.