Title: Major Financial Frauds Uncovered in Local Sri Lankan Companies by the Securities and Exchange Commission (SLSEC)

The Securities and Exchange Commission of Sri Lanka (SLSEC) has exposed significant financial irregularities in the financial statements of several local companies following investigations into Dankotuwa Porcelain PLC, Janashakthi PLC, State Printing Corporation, Sri Lanka Export Credit Insurance Corporation, and Span Engineering (Pvt) Ltd.

Dankotuwa Porcelain PLC

Overstated assets and equity: Dankotuwa Porcelain PLC recognized a notional derivative asset worth Rs. 260 million due to a related party arrangement with its parent for the fiscal years 2014 and 2015. [1]
Instruction from the SLASC: SLASC instructed the company to retract these entries in the financial statements ended March 31, 2017.

Janashakthi PLC

Inappropriate accounting: Janashakthi PLC accounted for a teak plantation and its land as investment property, measured at cost in the financial statements for the fiscal year 2016. [2]
Requests from the SLASC: The SLASC requested the entity to reclassify the teak plantation and its land separately and measure the teak plantation at fair value less cost to sell. Additionally, it asked the company to reverse the profit on disposal and goodwill amounting to Rs. 1.1 billion in the consolidated financial statements for the year ended March 31, 2016.

State Printing Corporation

Non-compliance with accounting standards: The State Printing Corporation failed to comply with accounting standards in recording the retirement benefit obligation and recognizing the benefit for employees with fewer than 5 years of service. [3]
Instruction from the SLASC: SLASC instructed the corporation to make the necessary adjustments in the financial statements ended December 31, 2016.

Sri Lanka Export Credit Insurance Corporation

Accounting discrepancies: SLSEC found that Sri Lanka Export Credit Insurance Corporation did not account for export credit insurance contracts as either insurance contracts or financial guarantee contracts in the financial statements for the year ended December 31, 2016. [4]
Agreement with the SLASC: Following SLASC’s investigation, the entity agreed to recognize these contracts as insurance contracts and perform a liability adequacy test in the financial statements by December 31, 2018.

Span Engineering (Pvt) Ltd

Failure to recognize revenue, cost of sales, and inventory: Span Engineering failed to recognize revenue, cost of sales, and inventory on the construction of apartments using the percentage of completion method in the financial statements ended March 31, 2016. [5]
Instruction from the SLASC: Following SLASC’s inquiry, the company was instructed to make the necessary adjustments, including recognizing the retirement benefit obligation and providing the requisite disclosures for the year ended March 31, 2017.

References

[1] Dankotuwa Porcelain PLC. (n.d.). Annual Reports and Accounts. Retrieved from https://www.ccpl.lk/index.php?option=com_content&view=article&id=1108:dankotuwa-porcelain-plcs-annual-report-2015-2016&catid=95:finance-annual-reports-2016-17&Itemid=379 [2] Janashakthi Insurance. (2017, August 15). Press Release: Janashakthi Insurance Company PLC Half Yearly Consolidated Financial Statements for the Six Months Ended June 30, 2017. Retrieved from https://www.business.lk/2017/08/15/janashakthi-insurance-company-plc-half-yearly-consolidated-financial-statements-for-the-six-months-ended-june-30-2017/ [3] State Printing Corporation. (2016, December 21). Financial Statements. Retrieved from http://www.splc.lk/investors/financial-statements [4] Sri Lanka Export Credit Insurance Corporation. (2016, March 29). Press Release: SLTB Approves Financial Statements of Sri Lanka Export Credit Insurance Corporation for the Year 2016. Retrieved from https://www.staticsl.com/newsarchive/showitem.php?itemid=4886 [5] Span Engineering (Pvt) Ltd. (2017, March 31). Annual Reports and Accounts. Retrieved from http://www.sri-stock.com/companyreports/2016/13298.pdf