Sri Lanka’s New Era for Auditors: Protecting Investors from Financial Fraud with Global Inspiration
Sri Lanka’s Securities and Exchange Commission Act, No. 19 of 2021 (SEC Act) brings significant changes to the role of auditors in the country, positioning them as watchdogs and whistleblowers to safeguard investors from accounting fraud. This new role mirrors international regulatory developments and responds to high-profile financial scandals.
Key Regulatory Developments: Sarbanes-Oxley Act (SOX) and Dodd-Frank Wall Street Reform and Consumer Protection Act
- Sarbanes-Oxley Act (SOX) of 2002: A turning point in U.S. financial regulation in the wake of Enron and WorldCom scandals. Strengthened auditor independence and accountability.
- Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010: Responded to the financial crisis in 2007 with provisions that bolstered financial system transparency and stability. Expanded regulatory oversight of auditors.
Implications for Auditors - Learning from the U.S.
Steven B. Harris, a PCAOB board member, highlighted at a Washington DC conference in March 2012 the importance of SOX and Dodd-Frank Act:
“Ten years ago, we witnessed an awakening of both public outrage and determination for justice as investors suffered through losses of billions, and many American families endured immense financial losses. Enron and WorldCom were just the tip of the iceberg. Their failures were symptoms of auditor self-regulation failure.”
Role of Auditors in Sri Lanka: Reporting Potential Breaches and Financial Irregularities
Under the SEC Act, auditors of listed companies, market intermediaries, and market institutions in Sri Lanka are required to report any potential financial irregularities or matters adversely affecting a company’s financial position to the respective boards and the Securities and Exchange Commission.
Benefits of the New Era for Auditors and Investors
The SEC Act provisions contribute to:
- Higher quality and integrity of audits
- Enhanced investor confidence
- A robust financial services sector
- International cooperation and information sharing in the fight against financial fraud.
In conclusion, the SEC Act is a crucial step forward in Sri Lanka’s regulatory landscape, emphasizing investor protection and upholding the highest standards of auditing, ultimately strengthening the country’s position as a credible financial market and fostering economic growth.