FR standards affect economic development

By Sanjeevi Jayasuriya

The development of the country’s economy is directly affected by the standard of financial reporting. The ever widening circle of financiers keen on international investment opportunities demand a higher level of financial reporting, said Central Bank Governor Ajith Nivard Cabraal at the international conference on 'Financial Reporting Supply Chain' in Negombo recently.

The financial reporting supply chain consists of all the different components in the financial sector. Effective financial reporting facilitates robust economic development, he said.

The conference was organised by the Confederation of Asian and Pacific Accountants (CAPA), one of the four recognised groupings of the International Federation of Accountants (IFAC) and was supported by IFAC and the World Bank. It was hosted by the Chartered Accountants of Sri Lanka.

The conference aimed at boosting awareness among regulators and policy makers in Asia, particularly South Asia on the role and importance of accounting and auditing to enhance the business climate to promote shared prosperity and to strengthen public financial management to improve governance and accountability.

Sri Lanka is now in the forefront of global reporting standards generating most of the information needed by investors. Reporting standards have evolved over the years. However, new accounting standards were introduced in response to the perennial issues the accounting profession has suffered from, Cabraal said.

Reaching agreement is difficult, but in the accounting profession a high degree of consensus has been arrived at. As a result there is an improvement in the financial accounting standards which has led to economic development, he said.

Sound financial reporting has become an important component in governance. However, it should be understood that sound financial reporting is not the answer to every problem. Financial reporting could be a mirror of the economy and it should interpret healthy and also unsound entities.

Financial reporting has improved over the years. It will help build investor climate and sentiments, but cannot take cover under financial reporting, the Governor said.

Financial reporting must keep abreast of the latest developments to ensure the actual picture where there is a limitation in valuation of assets and liabilities. High quality and reliable financial statements attract foreign investments. Good financial reporting is necessary to ensure investments come in a sustainable manner, he said.