The Sri Lanka Accounting and Auditing Standards Monitoring Board

Significant Cases Detected

Audit Report was qualified

1.	Alufab Ltd
	Auditors: M/s Hullugalle Samarasinghe & Co.

	The carrying amount of the investment in the subsidiary Eurocoat Ltd. had not been reduced to recognise a decline other than temporary in its value amounting to Rs. 17 million in the separate financial statements of Alufab Ltd. for the year ended 31 March 2003. The company had also not recognised an impairment loss amounting to Rs. 1 million on an advance outstanding from the same subsidiary. The auditors, Hulugalle Samarasinghe & Co. had qualified their report in this respect. Subsequent to inquiries made by the Board, Alufab Ltd., reduced the carrying value of the relevant assets in its separate financial statements for the year ended 31 March 2004.

2.	Blue Diamond Jewellery Worldwide Ltd.
	Auditors: K.P.M.G Ford, Rhodes, Thornton & Co.

	The Company had not provided for the diminution in value (other than temporary) of an investment in shares and technological rights in its financial statements for the year ended 31st March 2000. The auditors had qualified their report in this respect. As a result of the inquiries made by the Board, the Company agreed to provide for the diminution in value amounting to Rs. 517 Million and to reflect the same in financial statements for the year ended 31st March 2001.

3.	Ceylon Theatres Limited
	Auditors: K.P.M.G Ford, Rhodes, Thornton & Co.

	The financial statements of Lanka Ceramics Limited and its subsidiaries were not consolidated in the consolidated financial statements of Ceylon Theatres Limited, for the year ended 31st March 2002. The auditors have qualified their report in this respect. Users of the financial statements of a parent of a group of companies need to be informed about the financial position, results of operations and changes in financial position of the group as a whole. This need is served by consolidated financial statements.
	Sri Lanka Accounting Standards require a parent of a group of companies, which issues consolidated financial statements to consolidate all subsidiaries, other than those excluded in accordance with the requirements of the standards. Therefore, the Board issued a direction to Ceylon Theatres Limited to consolidate the financial statements of Lanka Ceramics Limited and its subsidiaries in the consolidated financial statements of Ceylon Theatres Limited for the year ended 31st March 2003.

4.	Ferntea Limited
	Auditors: M/s Ernst & Young
	The company had not reduced the carrying values of investments in its subsidiaries - Fern Developments (Pvt) Limited, OTG Ferntea Lanka (Pvt) Limited and Sun Island Tourists Services Ltd totalling to Rs.55.7 million in the financial statements for the year ended 31 March 2005. Auditors have qualified their report in this regard. Sri Lanka Accounting Standard SLAS 22, Accounting for investments requires the company to reduce the carrying amount of all long term investments to recognize a decline other than temporary in the values of investments. Therefore, the Board issued a direction to Ferntea Limited to reduce the carrying values of the investments of its subsidiaries - Fern Developments (Pvt) Limited, OTG Ferntea Lanka (Pvt) Limited and Sun Island Tourists Services Ltd by Rs.39.7 million in the financial statements for the year ended 31 March 2006.

5.	Lake House Printers & Publishers Limited
	Auditors: M/s K.P.M.G. Ford, Rhodes, Thronton & Co.
	The carrying amount of the investments in preference shares and ordinary shares in the related company, Lake House Investments Limited. had not been reduced to recognise a decline other than temporary in its value in the financial statements of Lake House Printers & Publishers Limited. for the year ended 31 March 2005. Further, the Company had not recognised the impairment loss on the advances outstanding from the same related company. The auditors, KPMG Ford Rhodes Thornton & Co. had qualified their report in this respect. On an inquiry made by the Board, Lake House Printers and Publishers Limited reduced the carrying values of the relevant assets in its separate financial statements by Rs.14 million and by Rs.15 million in its consolidated financial statements for the year ended 31 March 2006.

6.	Lanka Ceramic Limited
	Auditors: M/s K.P.M.G. Ford, Rhodes, Thronton & Co.
	The carrying value of the investment and receivable from L C L Distributors Limited had not been reduced to reflect the recoverable value in the financial statements of Lanka Ceramic Limited for the year ended 31 March 2006 resulting in overstating the net assets by Rs. 147 million. The auditors, KPMG Ford Rhodes Thornton & Co. had qualified their report in this respect. On an undertaking given to the Board, Lanka Ceramics Limited made the appropriate adjustments in its separate financial statements for the year ended 31 March 2007.

7.	Lanka Ceramic Limited
	Auditors: KPMG Ford, Rhodes, Thornton & Co
	The company had not reduced the carrying value of the receivable from Ceylon Ceramics Corporation to its recoverable value in the financial statements for the year ended 31 March 2005. The recoverable value confirmed by Ceylon Ceramics Corporation reflected a reduction of Rs. 55 million in the carrying value of the receivable. The Auditors KPMG Ford, Rhodes, Thornton & Cohad qualified their report in this respect. As a result of inquiries made by the Board, Lanka Ceramic Limited, undertook to recognize the reduction in the carrying value of the receivable in its financial statements for the year ended 31 March 2006.

8.	The Kandy Hotels Co. (1938) Ltd.
	Auditors: M/S Ernst & Young
	The Company had incurred expenses on architect’s fees and other preliminary work in order to reconstruct and renovate one of its hotels in 1981. Subsequently, this project has been suspended. When reviewing the financial statements of the Company for the year ended 31st December 1999, the Board observed that the architect’s fees and other preliminary work referred to above amounting to Rs. 3 Million were described as an investment and carried forward as an asset in the financial statements. The auditors had drawn emphasis to this item in their report, but had not qualified their opinion in this respect. Company agreed to write off the relevant item and to reflect the same in financial statements for the year ended 31st December 2001, and to include an explanation in the Directors Report for the year 2000. Having considered the amount involved, the Board did not consider it necessary to require the company to make the correction in the financial statements for the year 2000, the audit of which, according to information provided to the Board, was finalized at the time.

9.	Lanka Cement Limited
	Auditors: K.P.M.G Ford, Rhodes, Thornton & Co.

	The factory of Lanka Cement Limited is located in Kankasanthurai in the high security zone. Due to security reasons, the factory location had been made out of bounds since June 1990. Apart from the factory site the company has a hotel site also in Kankasanthurai. Financial statements of the company for the year ended 31st December 2002 included a balance of Rs. 1 billion as Inter-site current account under non current assets. This was supported with a note stating that this balance represents the net assets of the factory and hotel site at cost and that the accuracy of the balance could not be verified. Therefore, the auditors have not formed an opinion on the financial statements. The Board issued a direction to Lanka Cement Limited, to provide for the impairment in the carrying value of net assets relating to the factory and hotel site in Kankasanthurai and to reflect the changes in the financial statements for the year ended 31st December 2003.

10.	Lee Hedges & Company Limited
	Auditors: K.P.M.G Ford, Rhodes, Thornton & Co.

	The financial statements of Lee Hedges & Company Limited in respect of the year ended 31st March 2003 did not have a provision in respect of the irrecoverable portion of a debt of Rs. 76 million due from its subsidiary Viking Fashions (Pvt) Limited. Auditors have qualified their report in this regard. Subsequent to inquiries made by the Board, the company made a provision of Rs. 45 million in respect of this debt in the financial statements for the year ended 31st March 2004.

11.	Seylan Bank Ltd.
	Auditors: K.P.M.G Ford, Rhodes, Thornton & Co.

	Seylan Merchant Bank Ltd is a subsidiary of Seylan Bank Ltd.. Seylan Bank Ltd, had not made the relevant adjustments in respect of the failure to recognize the decline in value of investments held by Seylan Merchant Bank Ltd in its financial statements, when preparing its own consolidated financial statements for the year ended 31st December 1999. Therefore, group net assets as shown in the consolidated financial statements of Seylan Merchant Bank Ltd. of the year ended 31st December 1999 were also overstated by Rs. 67 Million, and the interest of the shareholders of the holding company by Rs. 54 Million. The auditors had qualified their report in this respect. As a result of inquires made by the Board, Company recognized the decline in value of shares, and the interim financial statements in respect of quarter ended 30th September 2000 reflected the reduced value.

12.	Seylan Merchant Bank Ltd.
	Auditors: K.P.M.G Ford, Rhodes, Thornton & Co.

	Dealing securities held by Seylan Merchant Bank Ltd. had a fall in value amounting to Rs. 28 Million of which only Rs. 5 Million was provided in the Financial Statements. The Company also failed to reduce the carrying amount of shares held as investment securities to recognize a decline (other than temporary) in the value of investments in Blue Diamond Jewellery Worldwide Ltd. amounting to Rs. 44 Million. In view of the above, the net assets as shown in the financial statements of Seylan Merchant Bank Ltd. of the year ended 31st December 1999 were overstated by Rs. 67 Million. The auditors had qualified their report in this respect. As a result of inquiries made by the Board, the Company agreed to recognize the decline in value of shares, and to ensure that the interim financial statements in respect of quarter ended 30th September 2000 reflect the reduced value.

13.	Statcon Limited
	Auditors: M/S Ernst & Young

	The Company had not accrued interest amounting to Rs. 1 million in respect of packing credit loans in its financial statements for the year ended 31st March 2003. The auditors had qualified their report in this respect. On inquiries made by the Board, the Company informed the Board that they would accrue interest in respect of the above and reflect the same in financial statements for the year ended 31st March 2004.