Turning a new page in the history of key Sri Lankan economic drivers-the SMEs, informal enterprises and unlisted businesses -a pioneering financial auditing framework was unveiled in Colombo on 30 August. As a result of the new framework, more than one million registered SMEs and countless other unlisted businesses in Sri Lanka finally get their long awaited break to become credit worthy and receive access to finance by clearing the biggest obstacle they have been facing; inability to be officially audited and show a verified financial statement, despite maintaining their own bookkeeping. The latest audit framework, modelled on the famed Nordic SME auditing, now equips the informal economic sectors to be credit-worthy on their own with any Sri Lankan bank or other financial institution, finally ending the credit-cum-financing blockade that relentlessly plagued these sectors for many decades.
“Even the World Bank supports Sri Lanka’s initiatives to develop comparable national accounting and auditing frameworks” announced the Minister of Industry and Commerce Rishad Bathiudeen on 30 August. Minister Bathiudeen was addressing the ceremonial launch event of Sri Lanka Auditing Standard (SLAuS) for the Audits of Non – Specified Business Enterprises (Non-SBEs) by the Chartered Accountants Sri Lanka at CA Sri Lanka office, Colombo. Called as “Sri Lanka Auditing Standard (SLAuS) for the Audits of Non – Specified Business Enterprises (Non-SBEs)”, this is also the first ever such SME bookkeeping audit framework to be introduced anywhere in South Asia (Among examples of SBEs are public listed firms and firms handling public money such as Finance companies). CA Sri Lanka, observing the “adoption of Sri Lanka Accounting Standards (SLFRS) for SMEs was low due to their complexity”, has pioneered the non-SBE SLAuS. Since the International Standards on Auditing (the ISAs) globally used in today’s auditing have become more extensive, complex and therefore impractical for SMEs to use them, the simplified version for Sri Lankan small businesses by CA Sri Lanka called as “non-SBE SLAuS” was launched. This stand-alone 60 page new SLAuS is a departure from the one-size-fits-all financial reporting and eases the complex reporting burden on private firms towards a practical and real-life framework, through a cost-benefit approach but with much less technical sophistication. This new SLAuS is modelled on similar auditing frameworks adopted by some Nordic countries. CA Sri Lanka believes that around 450 Lankan audit firms can start using the new “SLAuS for non-SBEs” on their clients from now on. The new SLAuS for non-SBEs is for unlisted firms/SMEs, and also for SMEs using “SLFRS for Smaller Entities”. SLFRS says any business with more than Rs 500 Mn annual revenue cannot use the SLFRS for Smaller Entities but have to go for SLFRS for SMEs or the full SLFRS. Therefore SBEs (Eg public listed firms and firms handling public money such as Financial institutions) should use the full SLFRS and not the “SLAuS for non-SBEs”.
“This is a milestone in Sri Lanka’s SME accounting and significantly strengthens SME and other informal sector focused initiatives by my Ministry under the reform vision of the unity government. According to the World Bank the quality of financial reporting in a country contributes toward the country’s goal of improving the investment climate attracting foreign direct investment (FDI) and fostering business development” said Minister Bathiudeen, and added: “Even the World Bank supports Sri Lanka’s initiatives towards developing comparable national accounting and auditing frameworks to harmonise with global accounting standards. I believe that this launch as a major step towards linking our informal sector including SMEs to global markets and standards. CA Sri Lanka has used the SME definition created by my Ministry to identify them in this initiative. The SMEs, small businesses and small and medium companies constitute a large part of Sri Lanka’s economy as they play a vital role in development and employment. We have a little more than one million registered SMEs each employing three persons. When we add the unregistered SMEs to this the importance of this sector in our GDP is clearly evident. I also urge CA Sri Lanka to focus on including the newest informal sub sector in our economy called as “Social Enterprises” as appropriate. Sri Lanka has 11000 social enterprises apart from the one million registered SMEs. The new SME Policy by my Ministry refers to Social Enterprises and they too operate across multiple economic sectors in Sri Lanka, similar to our registered companies.”
CA Sri Lanka immediate Past President Lasantha Wickremasinghe expressed his great relief on the “SLAuS for non-SBEs”. “This was my final promise when I took over as President in 2016. Today I am happy that it is now completed.” President of CA Sri Lanka Jagath Perera said: “CA Sri Lanka is the torchbearer of accounting and auditing profession in Sri Lanka. We are also one of the largest professional organisations in Sri Lanka with a student base of 44000. Today’s launch aims at our support for Lankan SMEs and small businesses.” Chairman of CA Sri Lanka’s Audit Framework Subcommittee Sanath Fernando said that SMEs finally get their chance to become a formal entity-to be officially audited and receive a verified financial statement and as a result, for the first time to be ‘bankable’ with Lankan financial institutions. “Sri Lanka also has approximately 92500 registered companies according to the Registrar of Companies. Of these around 50000, which are smaller, can also switch to this simplified framework making their life easier. Of the 92500, around 1500 are considered as SBEs and therefore these SBEs cannot use this new framework.” Subcommittee Chairman Fernando formulated the 60 page “SLAuS for non-SBEs” manual that was launched on 30 August and was handed over to Minister Bathiudeen.
As for Lankan SMEs, they power more than half the Lankan economy (estimate) with 35% -40% of total employment. Around 60% of all Lankan enterprises are seen as SMEs.