Wed. Oct 28th, 2020

by Avantha Munasinghe

Among the controversial issues surrounding the 20th Modification appears to be the issue of the removal of Auditor General’s capability to examine service where the Federal government, Public Corporation or a Regional Authority has a bulk shareholding. Many critics appear to have teased this concern, and the majority of them are holding up against the suggested modification. Their worry appears to be that if the Auditor General is not enabled to take a look at a specific federal government company, it is prone to be filled with corruption and malpractices.The audit by implying

is an organized and an independent evaluation and examination on particular topic, which in this case is the monetary statements, management accounts, management reports, accounting records and so on of a company. When it comes to a service, there is a statutory requirement for such assessment and examination to be reported to financiers yearly. The review, is produced as an “opinion” of the “Auditor”.

Besides the financiers, it is likewise normally utilized by the tax authorities, banks, lending institutions, experts or public for their specific decision-making and likewise to form their own viewpoint about the status of the business and its future. In all the federal government organization, the law needed them to be investigated by independent auditors, accredited to do so as specified by the Companies Act, up until 2015. The 19th Modification changed their auditor to be the Auditor General.Auditing, just like Accounting, depends upon particular usually embraced set of concepts. The audit of financial statements is normally performed in accordance with International Standards on Auditing in many cases modified by regional auditing standards. In Sri Lanka’s case, the Sri Lanka Auditing Standards are based upon the International Standards on Auditing( ISAs) launched by the International Auditing and Guarantee Standards Board( IAASB) of the International Federation of Accountants( IFAC), with small modifications to fulfill local conditions and requirements. Thus, to begin with, whether it is the Auditor General or an individual auditor, the requirements relevant to the job are the specific same. It is the approach that is different.There are a great deal of organization in Sri Lanka whose shareholding in some technique is connected to Federal federal government or quasi federal government entities for whom Auditor General has now become the Statutory Auditor. Some of these service are merely an extension of federal government entities serving a function of the federal government. For instance, Rakna Arakshaka Lanka Limited is a government-owned business, providing security services to federal government setups. Another is Ceylon Petroleum Storage Terminal Ltd., whose simply consumers are its mother and fathers entities i.e. Ceylon Petroleum Corporation and Lanka IOC PLC, just to whom it provides services. Such entities do not have to handle competition to safeguard business.However, there are likewise a great deal of government-owned organization which do service in the marketplace competing with other local and worldwide companies, which are freely and independently owned. Lanka General Trading Business Ltd., Lanka Hospitals Ltd., Sri Lanka Insurance Coverage Corporation Limited and Milco( Pvt.) Ltd., are a couple of examples. Each of them needs to compete for service with large sector of local and foreign business which are simply driven by revenue motive and enhancement of financiers ‘value.These company have actually flexible systems and treatments. Their boards of directors can take appropriate choices in a timely method to make an instant procurement or select suppliers to be more competitive and manage all their affairs in the nick of time. They can purchase their basic materials without requiring quotes if they believe it is a satisfying possibility. Even a junior level executive of such a company may have the ability to decide a cost discount to protect a sale.The situation of a state-owned company in the market in such scenarios is rather the opposite. They can avoid doing procurement as the situation requires. They require to dutifully follow the procurement rules, which

even the board of directors can not topple. The authorities have incredibly little flexibility to take a business chance. It is so easy for an individual business to grab organization from state-owned enterprises as the latter can not be proactive. There is little surprise most such business are loss-making and is a concern to the federal government and taxpayers.The federal government authorities and Ministers nevertheless want these quasi state companies to be effective or perform at least without being an issue to the Treasury. The fundamental company style of these companies is at a severe drawback to begin with. What 19th Adjustment gave such business by way of auditing by the Auditor General was to press them from pillar to post. This is quite evident by the powers approved to the Auditor General in the National Audit Act, which even a criminal activity detective would covet. A few of the powers are:( 1) The Auditor-General shall … gain access to or need any made up or electronic records or other info associating with the activities of an auditee entity; … call anyone whom the Auditor-General has sensible premises to believe to be in possessions of details

and files, as he might think about needed

to continue the functions under this Act, to obtain written or oral declarations and require the production of any file, from anyone, who may be either in-service or otherwise; … evaluate and make copies of or take extracts from any made up or electronic records and search for information whether or not in the custody of the auditee entity; … after acquiring approval from the appropriate Magistrate’s Court, take a look at and examine any account, deal or activity of

a banks, of anyone, where the Auditor-General has factor to think that cash belonging to an auditee entity has really been fraudulently, irregularly or wrongfully paid into such person’s account; … require any officer of banks to produce any file or provide any info associating with an account, offer, dealing or activity of person explained in paragraph( d) and to take copies of any document so produced, if needed … There is a vital difference in the audit method of a specialist auditor and a Supreme

Audit Organization such the Auditor General. In a financial sector audit, the primary objective is to ensure the report’s recipient gets a real and fair view of the financial status of the business. While the professional auditor is expected to report on adequacy of the controls in place and report any lapses to investors, the focus is mostly on the status of the investor’s investment.The method of Auditor General is more on ensuring the Compliance to standards, policies and treatments. This is natural thinking about that the Auditor General is supposed to investigate the way in which a federal government organization has in fact managed its allowance from the combined fund to offer a service to the public. The technique is, because of that, not concentrated on whether the business

is making proper return on the federal government’s funds.What the 19th Modification did was to alter the expert auditor, who focused on effectiveness of government company by the Auditor General who is concentrated on compliance. The officers running such government-owned service got a signal rather contrary to what the government authorities and ministers were pressing them prior to. Compliance ended up being the secret.There is no better approach to achieve compliance than to do absolutely nothing. The reality remains in the last number of years; these company put income intention in the back burner and wanted to leave from different audit inquiries raised by the Auditor General. The very best method to do that is not to go that additional mile their competitors would go to make the company rewarding. Refraining from doing anything became the method operandi.Some of the supporters of Auditor General’s auditing argue that his simple presence stops corruption. Stamping out corruption was the all-pervasive style of the 19th Change. Numerous new entities were set up under it to inspect corruption. Where are we today? Do we see any positive results? In the Corruption Understanding Index released by the Openness International in the year 2015, when the 19th Change was enacted, Sri Lanka’s scored 37 out of hundred. In 2019, our rating was just 38. We rank 93 out of 198 countries, 4 put. It is clear that the public views state sector organizations as corrupt as ever and certainly more corrupt than any financial sector company in this country. The Auditor General has actually been auditing these state sector companies for more than 200 years. If the solution versus corruption is audit being done by the Auditor General, why are we in this situation today?The fact is the Auditor General’s existence is a required evil in any federal government ministry or department, which does not have an industrial objective. His existence does guarantee a minimum of some level of corruption is made harder to attain. However, we ought to not get in the false conclusion that the existence of the Auditor General is the method to root out corruption. In a State-Owned Business( SoE) with business goals, his existence definitely does more damage than benefit.There is an inaccurate understanding that many public companies are loss making and, for that reason, they ought to go through an Audit by the Auditor General so that the “control” of public funds will put things right. As discussed above, it is the business design and constraints placed that is the truly cause for loss-making SoEs to increase. If this argument is suitable, we ought to see, out of more than 120 approximately federal government service, at last one which ended up being gratifying due to the Auditor General’s existence throughout last five years. There is none to reveal. In truth, this option will just make the customer far more sick.Another untruth wandered on the matter is that the financial declarations of the government business are not required to be sent out to Parliament unless they are audited by the Auditor General which would deteriorate parliamentary monetary oversight. The reality is that the entity, which is the investor in these business, require to combine the company’s monetary declarations with that of the mother and fathers entity and the latter is certainly subjected to parliamentary oversight with financial declarations of business examined by a personal auditor.Another mistaken belief is that guidance by COPE will put everything right in the general public organizations. COPE’s evaluation carried out by set of parliamentarians, who on lots of events have no understanding of the specific company, is not what is needed to put these business right. In many cases it is the bad company model rather of absence of COPE’s oversight that quiting working these businesses.SriLankan Airlines is a case of point. Lots of people state the bad procurement offers, continued losses and increased reliance on the Treasury by the airline company would continue to occur if the Auditor General is not auditing the airline business. It was making losses considering that it was established with or without Auditor General as the auditor. The Airline business organization is among the most competitive companies globally. Even the largest airlines typically discover it hard to be in the black. The marketplace requires flash decisions to be made by professional management. As mentioned formerly, this is not possible at SriLankan Airlines. We have really seen Chairmen and Directors coming and going with every modification of the subject minister. Nobody is having a long-lasting commitment to make it a success. Its rivals have boards, which are eliminated only if the airline company makes losses, not if their political masters alter. Without changing business model, even if we have hundred auditors to examine SriLankan Airlines, absolutely nothing will change.We all understand that our nation is struggling with a severe financial obligation crisis. We spent for huge infrastructure tasks, which were all monetary obligation moneyed. To support that off, we frantically need to bring foreign equity into our economy. Further financial commitment, while offering us momentary solace, will only intensify the problem. The federal government is developing Public Private Collaboration( PPP) programs to bring Foreign Financial financial investment from large worldwide corporations. The government likewise requires to be in control of them. The 19th Modification requires such PPP companies to have the Auditor General as its Auditor. Which worldwide service entity would drop their worldwide audit plans by the likes of KPMG, Ernst & Young or PwC and accept this plan? We can talk till the cows get back on how professional our Auditor General is and how independent he is, nevertheless the fact is that we live in a dream if we seriously wish to promote PPP structures with this sort of legislation on.The effective performance of Superior Audit Organizations such as the Auditor General is definitely a vital requirement of a working democracy. However, let’s not fool ourselves– it is not a panacea for all ills.Even in India where the previous Companies Act needed the appointment of Auditors to Government Companies by the Controller and Auditor General of India, the plan has actually been questioned in the Report of the Professional Committee On Company Law, which stated” The Committee talked about the application of the business law structure to Federal government company on various events and took the view that in basic, there need to not be any unique dispensation for such company. … For that reason, the extension of unique exemptions and protections to various industrial ventures used up by Government business in the course of their service operations together with tactical partners or public need to be done away with so that such entities can operate in the market placed on the really exact same conditions as other entities. In specific, reflection of monetary information of such ventures by Government business and their audit need to go through the typical legal program suitable. The existing hold-ups are enabling a good deal of service entities to avert their duties and liability for ideal disclosure of genuine and reasonable monetary info in a timely method. In this context, the

significance of the present area 619B of the Act was thought of appropriate for an evaluation. “If the federal government requires its companies to take on financial sector, the way forward is to make their management more versatile. Tossing those decision-makers to the Auditor General is the last thing required to be done if we want them to contend effectively with the financial sector. While the world is transferring to accept the minimal personal capital by making things simpler for such investors, a few of our so-called specialists appear to be, while paying lip service for bringing more and more FDI, doing precisely the opposite by slamming the elimination of this devastating piece of legislature generated by the 19th Change. (The author is an Accounting professional based in New South Wales, Australia) Source.

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