The Securities and Exchange Commission of Sri Lanka (SEC) and the Colombo Stock Exchange (CSE) jointly organized an awareness session recently, for auditors of companies which are currently on the CSE Watchlist. The session focused on enhancing awareness of enforcement actions and timelines, reducing prolonged Watchlist durations, and fostering a more coordinated regulatory approach among regulators, auditors, and listed companies.
Addressing the session, the Chairman of the SEC, Senior Prof. D.B.P.H. Dissabandara highlighted the core professional virtues of an auditor drawing from his own career beginnings, “At the heart of every auditor’s role lies three virtues: integrity, objectivity and confidentiality.” He reminded the gathering, that while an auditor may formally be recognized as a supplementary service provider under the SEC Act, their true value runs far deeper. Every time a listed company submits its financial statements, it is the auditor’s opinion that gives investors the confidence to trust those numbers. In that sense, auditors are not just ticking a regulatory box, they are the ones holding the line on transparency.
Further, Professor Dissabandara drew attention to the current Watchlist situation, noting that while the inclusion of certain companies on the Watchlist is an appropriate regulatory measure, their prolonged presence on the Watchlist may send adverse signals to investors. He called for a structured connected approach involving auditors and listed company management to ensure incremental progress towards resolving Watchlist triggers, particularly those arising from going concern issues and the non-submission of financial statements.
The Head of Listed Entity Compliance at the CSE, Mr. Kassapa Weerasekara delivered a presentation focused on enforcement actions that can lead to securities being transferred to the watchlist. Mr. Weerasekara reminded the gathering “If companies take the right steps and obtain independent verification on the resolution of all matters giving rise to Modified Opinion and Emphasis of Matter on Going Concern, their securities can be fully reinstated.” He closed by emphasizing that the process is designed to give companies a fair and structured opportunity to correct course.
The session concluded with an interactive panel discussion featuring Ms. Manuri Weerasinghe, Director Corporate Affairs, SEC, Ms. Nilupa Perera, Chief Regulatory Officer, CSE and Mr. Kassapa Weerasekara, Head of Listed Entity Compliance, CSE. The panel explored a range of issues that frequently arise between auditors and listed companies.
Ms. Manuri Weerasinghe emphasized that Section 90 of the SEC Act requires auditors to report any material breaches, fraud, dishonesty, or financial irregularities to the SEC or the CSE, as appropriate. She further highlighted that the Act provides legal protection to auditors by stating that they will not be held legally liable for any report made in good faith while performing their professional duties. This provision is intended to empower auditors to carry out their responsibilities independently and without fear of legal repercussions.
Panelists emphasized that the early identification of signals relating to the emphasis on going concern can provide significant benefits not only to the company concerned but also to the market as a whole.
Further, the discussion focused on the frequent claim by listed companies that auditors are responsible for delays in the submission of financial statements. During the Q & A session auditors indicated that they cannot commence their work until formally engaged by the company, rushed timelines imposed at the last minute will affect the thorough review processes that professional standards demand. The panel recommended that companies engage their auditors well in advance and establish clear timelines to avoid non submission becoming an enforcement trigger.
The SEC and the CSE remain committed to fostering a well regulated, transparent, and investor friendly capital market in Sri Lanka. Sessions of this nature are expected to continue as a part of the regulator’s ongoing efforts to strengthen capital market governance and ensure that enforcement mechanisms serve their intended purpose without impeding the long term viability of listed companies.
