SEC wants fresh laws creating auditors as whistleblower

The Securities and Exchange Commission ( SEC) says they want audit firms to ‘ blow the whistle’ as and when they come across ‘ anything unusual’ in listed firms they audit.

“We want them to tell us if they notice anything unusual in the accounts. We want them to whistle-blow,” SEC Chairman Thilak Karunaratne told the Business Times when asked about his recent comments made at the certificate awarding ceremony of the Corporate Directors Program jointly conducted by the Institute of Chartered Accountants of Sri Lanka and the SEC recently.

He added that the SEC is planning on bringing fresh laws mandating auditors to bring any financial irregularities to the SEC and that similar laws are adopted in

Thilak Karunaratne, Chairman of the SEC (Securities & Exchange Commission) has (as reported recently in the media) stated that the SEC is considering imposing an extra liability for the auditors of listed companies to report irregularities and improper conducts of listed companies they may come across during the audit, directly to SEC.

The objective of this move is not to take action against listed companies for irregularities reported by the auditors. The aim is to give red signals to the investors to make informed investment decisions.

As per the view of SEC officials this will improve the credibility and transparency of the financials of the listed companies.

CSE investors hail this proposal. This could increase the risk of countries such as Malaysia. "We are exploring the possibility of placing a legal duty on audit firms carrying out audits of listed the auditors while it will enhance the profile of the auditors and importance of the audit function. Anyway this action will require rigorous legislative arrangements.

Also the proposed report of the auditors (from 2016) will have a much detailed report. companies to report any irregularities or improper conduct they find in the financial statements of the company to the SEC”.

The Corporate Directors Programme is a distinct and timely initiative that is designed to enhance the knowledge and skills of directors in listed entities, he said, adding that knowledgeable and progressive leadership in these companies is important for the smooth functioning of the capital market. “It is under such conditions we at the SEC signed the MOU with ICASL in May 2014 to provide financial assistance for this programme.”

Inculcating good governance in a country would not be possible unless and until the essence of this ideology cascades down the line to all important segments inter alia the economy, he said, adding that this programme conducted jointly by ICASL and SEC will provide the knowledge and skills required in promoting good gover- nance which in essence is corporate governance within the respective organisations of the participants.

"However, I must stress here that effective corporate governance is not merely complying with rules, but is about intellectual honesty and adhering to the true spirit to the essence of good governance." He said that this type of responsibility imposed on auditors will assist the regulator to be more vigilant and take pre- emptive action to protect the interest of investors. “This would lead to increased credibility and greater transparency of both listed companies and audited reports particularly in the mind of potential investors. This is a legal requirement present in other jurisdictions such as Malaysia."