In a bid to bring transparency and accountability into the Sri Lanka’s public sector marred by corruption, the government is planning to adopt the International Public Sector Accounting Standards (IPSASs) soon, according to the senior most official of the country’s sole accounting standards setting body. 
To this end, the government has already accepted a proposal to amend the Sri Lanka Accounting and Auditing Standards Act No.15 of 1995, which will mandate Sri Lanka’s public sector to adopt IPSASs. 

“With that amendment, the Sri Lanka Accounting and Auditing Standards Monitoring Board will start monitoring the State owned Enterprises (SoEs) for compliance with IPSASs,” said Chartered Accountants (CA) of Sri Lanka President, Arjuna Herath. 

With the adoption of IPSASs, the state sector financial reporting will shift from the currently practiced ‘modified cash basis of accounting’ to ‘accrual accounting basis’ where a transaction is recognized in the books of accounts irrespective of its cash movement.  

This is expected to bring transparency, accountability and good governance into the Sri Lanka’s public sector financial management – a long felt structural economic reform in the country. 

As a precursor, CA Sri Lanka has issued just 10 public sector accounting standards which are now being adopted by the state sector corporations and departments only as a matter of good practice. 

But the absence of clearly laid out legislative framework similar to Sri Lanka Financial Reporting Standards (SLFRSs), mandatory adoption and subsequent compliance auditing have become a challenge. 

“In addition, while the government has recently taken steps to strengthen governance, we consider the current gaps in institutional capacity to pose risks to Sri Lanka’s institutional and governance effectiveness. 

These rating constraints weigh against the country’s robust growth prospects,” the rating agency added.  

Sri Lanka’s budget deficit for 2015 is estimated to hit 6.9 percent of the GDP against the projected 4.4 percent amid higher expenditure and legislative debacles in approving revenue proposals in parliament. 

A senior economist in the country recently recommended Sri Lanka to go for another International Monetary Fund (IMF) bail out before the economy hits a crisis point. 

The factors that were listed by S&P as assisting Sri Lanka’s growth were government investment, including measures to reconstruct the northern districts, the improving financial performance of public enterprises, increasing tourist arrivals, and declining inflation, which the rating agency expects to remain in the single digits.