New auditing standard to enhance SME access to finance in Sri Lanka
Sri Lanka’s SMEs, informal enterprises and unlisted businesses will now have greater access to finance with the unveiling of an SME audit framework, which will enable them to be certified credit-worthy before approaching banks and financial institutions.
The ‘Sri Lanka Auditing Standard (SLAuS) for the Audits of Non – Specified Business Enterprises (Non-SBEs)’, modelled on the famed Nordic SME auditing, is the first such SME bookkeeping audit framework to be introduced in South Asia. It was launched by the Chartered Accountants Sri Lanka at CA Sri Lanka in Colombo on 30th August.
The new framework provides a solution to a problem faced by more than one million registered SMEs and many other unlisted businesses in Sri Lanka, which is the inability to be officially audited and show a verified financial statement, despite maintaining their own bookkeeping.
Addressing the launch event, Minister of Industry and Commerce Rishad Bathiudeen said he believes that this launch is a major step towards linking Sri Lanka’s informal sector to global markets.
“Even the World Bank supports Sri Lanka’s initiatives to develop comparable national accounting and auditing frameworks. I also urge CA Sri Lanka to focus, in their future audit initiatives, on including the newest informal sub sector in our economy called Social Enterprises,” he said.
CA Sri Lanka said that it observed that the adoption of Sri Lanka Accounting Standards (SLFRS) for SMEs was low due to their complexity which necessitated the simplified version for Sri Lankan small businesses. This stand-alone 60-page new SLAuS is a departure from the one-size-fits-all financial reporting standard and eases the complex reporting burden on smaller SMEs and unlisted firms giving a practical and real-life framework, through a cost-benefit approach but with much less technical sophistication. CA Sri Lanka believes that around 450 Lankan audit firms can start using the new SLAuS for non-SBEs.
It is estimated that SMEs power more than half the Sri Lankan economy accounting for 35% to 40% of total employment. Around 60% of all Lankan enterprises are seen as SMEs. Access to finance is a major policy intervention area in the new National SME Policy Framework introduced by NEDA under Industry and Commerce Ministry. This policy calls banks, financial institutions and leasing companies to scale-up special lending windows for SMEs, as well as to promote equity injection to viable SMEs through angel funds and venture capital arrangements–both of which are finally made possible by the new ‘SLAuS for non-SBEs.’