SLAASMB flags persistent gaps in financial reporting compliance in 2024

• Reviews financial statements of 381 economically significant business enterprises
• 62% regulated entities, the rest economically significant private entities
• 49% of reviewed financial reports not fully compliant with accounting standards
• Gaps include: incomplete risk disclosures and maturity analyses of liabilities; weak impairment assessments; inadequate disclosure of valuation methods and fair value hierarchy classifications
• Also, missing or insufficient disclosures on tax reconciliations, related-party transactions, and depreciation policies; improper cash flow classifications and lack of clarity in accounting policy notes
• SLAASMB flags these issues as undermining reliability of financial statements

The Sri Lanka Accounting and Auditing Standards Monitoring Board (SLAASMB) has reported that while overall compliance with Sri Lanka Accounting Standards (LKAS) remained broadly stable in 2024, nearly half of the financial statements reviewed required improvements, underscoring ongoing weaknesses in disclosure quality and accounting judgments across sectors.

According to its Regulatory Activity Report 2024, the SLAASMB reviewed 388 sets of financial statements relating to 381 economically significant Specified Business Enterprises (SBEs) from the public and private sectors, a sharp increase from 261 reviews in 2023 following additional supervisory recruitment. 

Around 62% of the financial statements reviewed during the year comprised of regulated entities and the balance represented economically significant private entities.



Of the 388 financial reports reviewed, 51% were fully compliant with applicable standards, while 49% required improvements. No cases warranted enforcement action for significant non-compliance.

The regulator identified recurring deficiencies in several core areas of annual reporting. 

These included incomplete disclosures on risks arising from financial instruments, inadequate maturity analyses of financial liabilities, and weak impairment assessments under SLFRS 9 and LKAS 36. 

Entities continued to under-report information on valuation techniques and fair value hierarchy classifications, while revenue recognition disclosures under SLFRS 15 remained insufficient in timing, payment terms, warranties and performance obligations.

Disclosure gaps also surfaced in tax reconciliations, related-party transactions, depreciation practices, cash flow classifications, and accounting policy explanations. The SLAASMB highlighted instances where entities failed to reassess useful lives of fully depreciated assets or omitted required details on revalued property, plant, and equipment.

Compliance challenges extended to impairment reviews. Several SBEs did not recognise expected credit losses despite observable evidence, and some omitted the time value of money in ECL calculations. The regulator stressed that these omissions directly affect the reliability of financial statements.

On audit oversight, the SLAASMB inspected 22 audits conducted by six firms, up from 16 in 2023. 19 audits were compliant with Sri Lanka Auditing Standards, while three required improvements. 

Deficiencies mainly related to audit planning, risk assessment, testing of journal entries, audit evidence for revenue and inventory, evaluation of going-concern disclosures, and sample selection procedures. These findings were communicated through observation letters.

The SLAASMB said it continued sharing inspection outcomes with audit committees of listed companies to strengthen governance oversight. It also collaborated with CA Sri Lanka to disseminate common inspection findings to preparers and auditors.

The regulator noted improved submission rates of annual reports during the year, with 1,517 SBEs filing financial statements compared to 1,194 in 2020, reflecting a recovery from pandemic-era disruptions.

While compliance levels remain high at a macro level, the SLAASMB’s 2024 findings underline that the quality of annual reporting still depends heavily on the diligence of preparers and auditors in applying standards relating to disclosure, measurement and judgment, areas where weaknesses remain recurring and widespread.