Accounting & Auditing

Requirement of Preparation of Financial Statements in Sri Lanka

Companies Act No. 07 of 2007 - Duty to keep accounting records
Every company shall keep accounting records which correctly record and explain the company’s transactions, and will -
(a) at any time enable the financial positions of the company to be determined with reasonable accuracy;
(b) enable the directors to prepare financial statements in accordance with this Act; and
(c) enable the financial statements of the company to be readily and properly audited

Inland Revenue Act No. 24 of 2017 - Method of accounting
Unless otherwise provided by Inland Revenue Act, the timing of inclusions and deductions in calculating a person’s income shall be made according to generally accepted accounting principles.
A taxpayer engaged in business or investment activity or required under the Inland Revenue Act to make a return shall keep and maintain in Sri Lanka records and accounts sufficient to record all transactions and to ascertain the gains and profits made or the loss incurred in respect of those transactions.

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Companies Act No. 07 of 2007 - Appointment of Auditor

A company shall at each annual general meeting, appoint an auditor to

(a) hold office from the conclusion of that meeting until the conclusion of the next annual general meeting; and

(b) audit the financial statements of the company and if the company is required to complete group financial statements, those group financial statement for the accounting period next after the balance sheet date for which financial statements were audited.

Every Company shall notify to the Registrar of Companies once in every year the name of Company Auditors duly appointed by way of Annual Return (Form 15).

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The objective of internal audit is to provide independent assurance that an organization’s risk management, governance and internal control process including accounting controls are operating effectively.

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Outsourcing of accounting assignments including physical verification of stocks, fixed assets and reconciliation of bank balances, trade debtors or trade creditors etc are required to ensure accounting controls are effectively implemented in any organization.

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