2014 Sri Lanka ROSC A&A Meeting With Development Partners January 29, 2014

Objective Supporting Sri Lanka’s growth by –improving the investment climate (ROSC & ) Strengthening private sector transparency and accountability Strengthening regulators –strengthening the public sector –Supporting structural shifts in the economy and social inclusion 2

World Bank Support Strengthening Corporate Reporting ROSC 2014IFRS Roll OutSMP TrainingAudit Quality Assurance Strengthening the Public Sector PEFA Assessment Public Sector Accounting Standards (IPSAS) Professionalising Public Sector Accountants Support to Auditor General 3

Outline…. About the ROSC A&A ProgrammeSri Lanka ROSCAccounting & Auditing ProfessionWay Forward 4

Monitoring, Enforcement & Oversight Auditing Standards Accounting Standards Accountancy Profession & Ethics Education & Training Statutory Framework Reminder of approach. diagnostic to capacity building Emerging issues 2004 Policy recommendations Reforms to strengthen – systemic issues WHY Diagnostic questionnaire and due diligence

Twelve Standards and Codes – financial stability Macroeconomic policy and data transparency 1.Data Transparency 2.Fiscal Transparency 3.Monetary and Financial Policy Transparency Financial Sector Regulation & Supervision 4.Banking Supervision 5.Securities Regulation 6.Insurance Supervision 7. Payments Systems 8. Anti-money laundering Market Integrity – institutional and market infrastructure 9. Accounting 10. Auditing 11. Corporate Governance 12. Insolvency and Creditor Rights Bank-Fund Joint Initiative on Standards & Codes

Identify priority areas in A&A Institutional Framework underpinning Corporate Reporting Laws and regulations for SBEs/SOEs/SMEs, SMO for PAOs, Codes, Standard setting processes, monitoring mechanisms, accounting education Comparison of Accounting & Auditing Standards Benchmarking with IFRS and ISA Actual Reporting & Auditing Practices Independent review of a sample covering listed companies, SOEs and other SBEs including Banks and insurance cos, review regulators processes and results Stakeholder needs and perceptions on quality of corporate reporting Capital market development Access to finance for SMEs Oversight of SOEs that are SBEs 7

8 Global IASB (Financial Reporting Standard Setter ) IFAC (Auditing, Ethics, Education, Public Sector Standard Setter and apex body for PAOs) Sri Lanka SLAASMB CBSL (Bank and NBFI) SEC & CSE Registrar of Companies IBSL Profession CASL Standard Setter for A&A Other Local Bodies AATSL / CMA Global Accounting Bodies CIMA/ ACCA/ CFA State & Foreign Universities 120,000 students 13,000 members

9 Key to development of capital markets SLFRS now compatible with IFRS BV 2013 SLAS are compatible with ISA 2009 Obligation to facilitate adoption of global standards Promulgate Accounting & Auditing Standards Has a portfolio of qualifications including the CA qualification Key player in tertiary education recruiting approx 8000 students annually. Approx 40,000 registered students. Effective inclusion of provinces and minimise disparities Monitor training and adapt to changing employer requirements Provide Accounting Qualifications Compliance with IFAC SMOs Issues practising certificates for auditors CPD Audit quality assurance (SLSQC 1) Code of Ethics Set Standards for Members Currently holds Presidency of CAPA and SAFA Influence global standards setting process Influence regional adoption of global standards Global Integration of the Profession

Regulatory Milestones ROSC 2004 Companies Act No 7 of 2007 RII Act No,23 of 2011 Amendments to Banking Act and issue of directions Finance Business Act No 42 of 2012 Convergence to SLFRS 2012 ROSC

Key Milestones Currently complies with BV 2013 Issues with valuations New skills required to implement and monitor consistent implementation of SLFRS Dual Reporting – CBSL & Inland Revenue Challenges with SMEs Convergence with IFRS 11

Key Milestones Currently complies with 2009 ISAs Audit quality assurance Registered Auditors Challenges with SMPs Audit 12

Key Milestones Employs over 60,000 Sri Lankans in companies US$ 471 mn in 2013 FAO is 1/5 Cetrnes of Excellence Broad spectrum of work with a growing emphasis on high end work Talent pool of 120,000 + accounting students is a key attraction 25% of A/L students do commerce and this is expected to increase to 35% BPO Sector 13

CBSL (Bank and NBFI), IBSL, SEC and CSE have all increased capacity and increased regulation. Changing needs as goal posts shift Regulators 14

Key Milestones Contributes to the growth of a knowledge hub Growth of profession is mainly Colombo centric Qualification framework is not in place Standard setting process needs to recognise new professional bodies Growth of the Profession 15

2004 ROSC Recommendations Mandate use of IFRS without modification Issue guidance for uniform application of IFRS Strengthen enforcement mechanisms Strengthen capacity of regulators Wider public availability and enforcement Disclosure of non-audit fees Implemented Co-ordination amongst regulators Upgrade licensing procedures for accountants/auditors in public practice Strengthen CASL capacity Improve professional education/training at CASL Improve academic accounting curriculum and teaching Mandatory CPE Partially Implemented Legal reforms for independent oversight of auditing profession by SLAASMB Introduce an awareness program for improving the degree of compliance with accounting requirements by specified business enterprises. Not Implemented 16 6/14 2/14 6/14

Strengthening CASL Enhance Public Sector Financial Management Capital Markets Development Provincial Development & Effective Inclusion Institutional Capacity Building Promote country’s economic growth through capital markets development, public sectors financial management, and a skilled work force Provincial development and effective social inclusion Modernise to meet employer requirements Effective and efficient performance

Public Sector Proposals Improve knowledge of IPSAS within Public Sector Assess and benchmark knowledge and application of IPSAS CASL/CIPFA Joint Qualification Provide resources for Public Sector Finance professionals CPD Improve Risk Management in PS Skilled  High Performing  Effective Better Public Sector Financial Management Paving the way for IPSAS/SLPSAS Implementation

Skilled  High Performing  Effective Capital Markets development Capital Markets Development Proposals Strengthen CASL policy advocacy role locally and globally Improve CG in line with global developme nts Improve Risk Manageme nt Practices within companies Implement Audi Quality Assurance programme Improve Corporate Reporting Facilitate effective implementa tion of IFRS and reduce variability in interpretatio n

Provincial Development & Effective Inclusion Reduce disparity in facilities for students/ members in provinces Develop SMEs & SMPs Provide alternate career paths to cater to employer requirement s Improve Professional Education & Training IT Infrastructur e Skilled  High Performing  Effective Inclusion of provinces for sustainable economic growth Improved access to finance for SME`s through better accounting and financial reporting

Institutional Capacity Building Effective implementation of strategy and compliance with IFAC membership obligations Examination process to be relevant to current employer requirements and in line with IFAC membership obligations A modern Financial Training Centre for the sub continent of South Asia and a venue for public and private sector with capability to link globally Campaigns to educate public on matters necessary for progress of the profession Enable scalability of solutions Provincial development and effective inclusion Modernise to meet employer requirements Effective and efficient performance ROSC 62

Q & A 22

Thank You 23