SEC urges auditors to ensure improved accuracy and compliance of listed entities

From left: SLASSMB Director General Anusha Mohotti, SEC Director General, Chinthaka Mendis, SEC Chairman Faizal Salieh, SEC Commission Member and President of the Institute of Chartered Accountants of Sri Lanka, Sanjaya Bandara and SEC Acting Director Corporate Affairs Manuri Weerasinghe

• Says scope of audit should be enhanced to assess robustness of a company’s governance framework, policies, procedures and processes
• Urges companies must move from a compliance box-ticking mode to an active practicing mode
• Expects auditors to ask searching questions on these matters in the audit assurance process

In a bid to have a strongly functioning stock exchange, the Securities and Exchange Commission (SEC) called on the auditors to step up efforts to ensure improved accuracy of financial reports and compliance of listed companies, market institutions and intermediaries.

With the new SEC Act classifying auditors as ‘supplementary service providers’, the capital market regulator pointed out the expanded scope of the role would help build trust and confidence of investors in the capital market.    
“In order to establish a fair, orderly and transparent capital market, it is important that the whole gamut of company’s governance and risk management structures and processes are rigorously audited. 

“Therefore, the scope of audit should be enhanced to assess the robustness of a company’s governance framework, policies, procedures and processes in place to mitigate risk and non-compliance including insider dealing, market manipulation, price rigging, etc. by directors, C-Suite, KMPs and staff,” said SEC Chairman Faizal Salieh. 
He made these comments while addressing a meeting with principal partners of audit firms at the SEC recently.

The capital market regulator expects auditors to have a more responsible role in providing assurances that the internal control environments of entities operating in the capital market meet the required good governance standards. 
“Companies must move from a compliance box-ticking mode to an active practicing mode. We as regulator expect auditors to ask searching questions on these matters in the audit assurance process,” asserted Salieh.

Directors of stock brokering companies will be held liable for any misconduct of its investment advisors or employees as Board of Directors are responsible for institutionalising a robust and efficient governance framework within the entity. 
“Auditors, as the third line of defence, should look into the effectiveness of such frameworks, policies and procedures as part of the audit process. A director of any company cannot claim unawareness of capital market regulations when engaging in share trading activities,” asserted the SEC chief.

During the wide-ranging discussion of issues, key elements regarding the duty of auditors in verifying the effectiveness of mechanisms in place to facilitate and protect whistle blowers, the importance of doing business valuations (by the consulting arms of audit firms) with greater rigour and fairness from an investor protection perspective, the need to develop a list of Approved  Qualified Auditors based on specific and relevant criteria, and the need to build and strengthen capacity within audit firms were extensively deliberated at the meeting.