Thursday Nov 28, 2024
Friday, 22 March 2024 00:06 - - {{hitsCtrl.values.hits}}
The Securities and Exchange Commission of Sri Lanka (SEC) as part of its continuous engagement process with stakeholders in the capital market landscape, held a meeting with the managing partners and audit partners of audit firms on its list of Approved Auditors recently.
The purpose of this session was to discuss the SEC’s expectations on the role of the auditors and some recent concerns that had arisen.
SEC Chairman Faizal Salieh, SEC Commission Members Manil Jayesinghe and Heshana Kuruppu, SEC Director General, Chinthaka Mendis, Director Corporate Affairs, Manuri Weerasinghe, Sri Lanka Accounting and Auditing Standards Monitoring Board (SLAASMB) Director General, Anusha Mohotti, and other officials of the SEC and SLAASMB as well as the representatives from SEC’s Approved List of Auditors participated at the meeting.
The SEC Chairman apprised the audience of the SEC’s proactive regulatory approach in regulating Listed Entities emphasised the importance of audit quality and the duties and obligations of the auditors towards the public interest.
The SEC officials also presented some case examples that had transpired during the SEC’s regular review process. The meeting also discussed the administrative sanctions applicable to directors of Listed Entities for certain non-compliances to strengthen market discipline.
The importance of collaboration between external and internal auditors was discussed and the SEC Chairman requested the external auditors to consider appropriate mechanisms to effectively improve the coordination between the external and internal audit processes to achieve a greater level of efficiency.
It was stressed that the ultimate objective is to integrate the internal audit plan and focus areas with the external audit plan and focus, for better effectiveness in the final audit outcomes. The audit firm representatives stated that the independence, technical competencies, and effectiveness of the internal audit process need to be assured to have a positive impact on the internal control environment and financial statements. The importance of determining a consistent internal audit scope across the board was highlighted and it was agreed that there should be effective coordination among the Institute of Internal Auditors (IIA), the SEC, and CA Sri Lanka on this.
SEC and SLAASMB officials underscored the importance of involving the Board Audit Committee Chairs of Listed Entities in the dialogue. It was noted that the Board Audit Committees should be educated to evaluate the work carried out by the internal audit.
SEC Chairman Salieh stated that the SEC would spearhead educating the Board Audit Committees together with SLAASMB, IIA, and CA Sri Lanka.
The audit firms expressed the challenges they face in expanding their scope in response to the evolving regulatory environment. The SEC officials took note of the concerns raised and stated that the SEC requires that whenever the auditors identify any contraventions in the ordinary course of their duties, they shall promptly notify the company’s Board Audit Committee, Board of Directors, and the SEC as appropriate.
The auditors also expressed their concerns about several issues observed in the market such as Listed Entities compromising on the audit quality by opting for lower audit fees, the lack of competency criteria for appointing directors to Listed Entities, and highlighted the importance of making the cost of non-compliance higher than the cost of compliance. The SEC appraised the audience on the initiatives taken to address the concerns. It was stated that the SEC introduced the Approved List of Auditors to ensure that market standards and stature are maintained; and that the SEC has currently given the ownership to company Boards to determine and disclose the competency criteria for the appointment of directors.