Sri Lanka Technological Campus

Bachelor of Business Management Honours In

Accounting And Finance

Group No.04
M.M.T. Peiris
Name with Initials: W.M.A.A. Bandara
I.U.S. Bandaranayake
K.R. Roshanthini
W.M.V.M. Weerasekara
925
927
Student Registration No: 958
1066
1228

Title of Assignment:

Assignment No: Group ✓ Individual

Module Code: BBMAF42013

Module Name: Advance Accounting Theory

Lecturer: Dr. Damith Gangodawilage

Student’s Statement:

I/We certify that I/We have not plagiarized the work of others or participated in unauthorized
collusion when preparing this assignment.

Signature: ………………….................... Date: ……………………………….

Office use only:

On/ before deadline Extension Given Late Submission

Marks Given:
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Content

1. Letter of Transmittal 3

2. Executive summary 4

3. Introduction 5

4. Background 7

5. Different Disclosure 8

6. Framework 12

7. Management's Participation in Maintaining the Quality of The Report Expected

by The Company's Stakeholders. 16

8. Discussion and conclusion 18

9. References 20

10. Annexure 21

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1. LETTER OF TRANSMITTAL

25th November 2022,

Dr. Damith Gangodawilage,

Senior Lecturer,

Sri Lanka Technological Campus.

Sir,

We have prepared the evaluation report as the consultant to evaluate the quality

of financial reporting of the alliance finance company. This report describes the

information we collected to evaluate the quality of financial reporting.

The primary purpose of this report is to evaluate the quality of financial reporting

of the alliance finance company. this report includes the details of different

disclosures, framework applicable for presenting that the various disclosures, and

how the management attends to maintain the quality of the report expected by

stakeholders of the company.

Sincerely yours,

M.M.T. Peiris - 925

W.M.A.A. Bandara - 927

I.U.S. Bandaranayake - 958

K.R. Roshanthini - 1066

W.M.V.M. Weerasekara – 1228

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2. EXECUTIVE SUMMARY

This report evaluates the quality of financial reporting of Alliance Finance Company

PLC. The year of 2021/2022 annual report identified the different disclosures.

Accordingly, there are two types of disclosures that can be identified as disclosures which

submitted in their annual report. The best amount of overall disclosure for each company

must be determined. Either business adhere carefully to mandatory disclosures, or they

satisfy the bare minimum criteria, which increases their reporting by voluntarily

providing information. Reviewed the interim and annual Financial Statements of the

company as well as the financial information and disclosures made to the public relation

to the said financial prior to its submission and approval by the board. Accordingly, the

report identified the committee confirms that the company has compiled with the

requirements of the Code of Best Practice on related party transactions and compliance

with the listing rules in respect of requisite disclosures. The Committee confirms that the

Company has complied with the requirements of the Code of Best Practice on Related

Party Transactions and compliance with the Listing Rules in respect of requisite

disclosures.

The board of director has authority and responsibility to manage, implement and

maintain the disclosure policy. The corporate Governance committee meets periodically

throughout the year to assess the disclosure policy’s requirements. A corporate

compliance report is created once a year to ensure full compliance with the corporate

governance principles.

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3. INTRODUCTION

Usually, disclosure is an essential component of financial reporting. The accounting

process ends with disclosure, which takes the form of a complete set of financial

statements. Financial statements should provide information that is helpful to current and

future investors, creditors, and other similar users for give an exact understanding about

the briefly described information of financial statement. According to Statement of

Financial Accounting Concept No. 1 stated under the topic of conceptual framework for

financial Accounting and preparation of financial statement, People with business and

economic knowledge should be able to comprehend this material (Gunawan & Lina,

2015).

Accordingly, there are two types of disclosures that can be identified as disclosures which

submitted companies in their annual reports. There are,

I) Voluntary Disclosure

II) Mandatory and Regulatory Disclosure

Voluntary disclosures are information that provide voluntarily by the business. These

disclosures are the one that goes above and beyond what the relevant capital market rules

minimal standards for disclosure. The company has the discretion to make voluntary

disclosures in the annual report that gave rise to the diversity or variation of inter-

company voluntary disclosure. These disclosures are responsibility of managers

(Gunawan & Lina, 2015).

Mandatory and Regulatory disclosures refer the information to be presented in the

financial statements according to the establishment of Security Exchange Commission,

IASB or FASB etc. Mandatory disclosures are responsibility of regulatory organizations.

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Regulators compel businesses to disclose information that they may want to hide

(Darrough, 1993). The regulatory agencies' aim to protect the wealth of regular investors

is one of the reasons for disclosure regulation. As the information gap between them is

anticipated to close, regulators hope to redistribute wealth among knowledgeable and

uniformed investors by ensuring a minimum degree of transparency.

Accordingly, between these two concepts there is no apparent connection. The best

amount of overall disclosure for each company must be determined. Either businesses

adhere carefully to mandatory disclosures, which limits their choice over voluntary

disclosure, or they satisfy the bare minimum criteria, which increases their reporting by

voluntarily providing information (Leuz & Wysocki, 2008).

Further, we have referred these two concepts according to Alliance company. In this

study we hope to give an idea about how Alliance company provided their annual reports

with the mandatory disclosures and voluntary disclosures.

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4. BACKGROUND

Alliance Finance Co. PLC is the oldest finance company in Sri Lanka. The company is

first Non-Bank Financial Institution (NBFI) in South Asia to become a holistic,

sustainability-certified, value driven financial institution, under the pioneering

Sustainability Standards and Certification Initiative (SSCI) and first Finance company to

introduce Savings Accounts. AFC has a shared vision to foster growth and prosperity of

its customers whilst building trust and long-lasting relationships with the company.

Environmental and sustainability initiatives are at the center of AFC’s sustainability

agenda, which embodies the company’s drive towards supporting local and global

sustainability priorities.

Alliance Finance is also the first company in South Asia to become a certified financial

institution in holistic sustainability, under the pioneering Sustainability Standards and

Certification Initiative (SSCI). SSCI is the first measurable and certifiable sustainability

standard developed in Germany by the International Council of Sustainability Standards

for Value Driven Financial Institutions.

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5. DIFFERENT DISCLOSURE

❖ Ensuring appropriate disclosures about related parties and related party

transactions comply with regulatory requirements.

❖ To disclose sustainability information in the annual report, the company

has followed the integrated reporting approach published by the

International Integrated Reporting Council (IIRC) and wherever possible

the GRI Standards were last updated in 2017.

❖ To further demonstrate its commitment to sustainability, AFC has also

reported on its contribution to the United Nations Sustainable

Development Goals (SDGs).

❖ The Board of Directors recognizes that conflicts of interest may arise from

time to time. Accordingly, each member of the board of directors and

employees of corporate management are required to fully disclose all

actual and potential conflicts of interest. They must disclose any and all

matters that could be construed as a conflict of interest through an annual

disclosure process and whenever such an actual or potential conflict

arises.

❖ The main methods of communicating with the shareholders are the

interim financial statements and the annual report. Both the Company's

website and the CSE website have the reports available. Shareholders

with concerns can get in touch with the chairperson, managing director,

or company secretary after the financial reports are publicly disclosed. All

price-sensitive information is disclosed to the public in accordance with

the Listing Rules' corporate disclosure requirements, and the sale of the

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Rajagiriya property was one such case. The Annual General Meeting is

an important platform for fostering direct communication with

shareholders.

❖ The method used specifies the authority and approval levels, and

Directors and KMPs are required to proactively disclose information prior

to engaging in transactions with the Company even though they are not

involved in the decision-making process. A framework for periodic

disclosures is in place. All of these transactions take place on an arms-

length basis without any special consideration.

❖ Publish Interim and Annual Financial Statements based on applicable

accounting standards and publish in Sinhala, Tamil and English

newspapers

➢ The formats required by the supervisory and regulatory

authorities and applicable accounting standards are

followed in the preparation and publication of the annual

and interim Financial Statements. Financial Statements are

published in the English, Tamil, and Sinhala media twice

a year. The Colombo Stock Exchange has made interim

financial statements available. They were prepared in

accordance with Sri Lanka Financial Reporting Standards.

❖ A statement to the effect that the annual Audited Financial Statements

have been prepared in line with applicable accounting standards and

regulatory requirements, inclusive of specific disclosures.

❖ Disclosure requirements when appointing new Directors to the Board

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➢ Both the appointment of new Directors and the makeup of

the Board Committees were announced via the Colombo

Stock Exchange. With the prior consent of the Central

Bank of Sri Lanka, Mr.W.P.K. Jayawardana was re-

designated as Deputy Managing Director. The

announcement was made via the Colombo Stock

Exchange. The Annual Report includes bios for each

Director along with information about the Board of

Directors.

❖ Disclosure in the Annual Report about the Board’s performance

evaluation methodology

❖ Disclosure in the Annual Report about the Remuneration Committee

members, statement on Remuneration Policy and aggregate remuneration

paid.

❖ Disclosure of major and material transactions

➢ Directors should disclose all proposed corporate

transactions which would materially alter the net asset

base of the Company.

Major transactions

• During the year, the Company did not engage in or commit to any major

transactions which materially affected the Company’s net asset base.

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❖ Disclosure of Related Party Transactions.

➢ The Company has a related party transaction policy

approved by the Board to monitor and report related party

transactions. The Company Secretary shall make

necessary disclosures of any related party transactions

required to be disclosed as per the rules of the CSE.

➢ The Company transacted in the ordinary course of

business at commercial prices with parties defined as

related parties in terms of Sri Lanka Accounting Standard

- LKAS 24 'Related Party Disclosures', excluding key

management transactions. Personnel (KMPs) have been

availed under schemes which are uniformly applicable to

all staff at concessional rates.

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6. FRAMEWORK

❖ Legal Development

In 2021, the Central Bank introduced several policy measures and prudential regulations

to strengthen the supervisory and regulatory framework of non-banking financial

institutions. CBSL encouraged its policy of industrial consolidation to ensure strong

industrialists supporting the sustainability of the industry in the long run.

❖ IT Governance

AFC has recognized the importance of having a comprehensive IT governance

framework with clear policies and proper segregation of responsibilities, with increased

investment directed towards strengthening the company's IT infrastructure. Accordingly,

the role of Chief Information Officer (CIO) was introduced in 2021 to oversee the

implementation of the overall IT strategy, with a primary focus on the implementation

of the core banking system and other digital infrastructure projects. They also have a

skilled IT team that monitors and controls IT risks and supports the company's digital

ambitions.

❖ Integrated Reporting Framework

Integrated Reporting Framework issued by the International Integrating Reporting

Council (IIRC)

The report is prepared in accordance with the Integrated Reporting Framework of the

International Integrated Reporting Council and includes information on how the

company addressed challenges and opportunities through its purpose, vision and strategy.

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❖ Corporate Governance Framework

AFC's corporate governance framework provides the foundation to support the

company's growth strategy by influencing how objectives are determined and achieved,

how risk is monitored and assessed, and how performance is optimized. The main

objective of AFC's corporate governance framework is therefore to facilitate the creation

or enhancement of stakeholder value based on the good governance principles of

fairness, accountability, responsibility and transparency. The framework reflects the

company's commitment to comply with all regulatory requirements and corporate best

practices embedded in AFC's governance structure to ensure the effective practice of

good governance.

❖ Internal Control Framework

The Board of Directors is responsible for establishing a comprehensive system of internal

controls to exercise the necessary controls over all operational activities, with particular

attention to areas deemed to be at risk.

The system is designed to ensure, inter alia, protection of assets, maintenance of proper

accounting records and reliability of generated financial information.

However, there is no reasonable and absolute guarantee that any system will prevent or

detect errors and irregularities within a reasonable period of time.

The Board reviews reports arising from internal and external audits and monitors the

company's progress by evaluating actual results against budgets and industry standards.

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❖ Risk Management Framework

AFC's policy is to achieve best practices in the management of all risks that adversely

affect the company, its operations, customers, people, physical and digital assets,

activities, the community or the environment. Accordingly, risk management is part of

strategic, operational and line management responsibilities and is integrated into strategic

and business planning processes. The Board and the Board Joint Risk Management

Committee are the highest bodies in charge of risk stewardship. Their duties include

overviewing the risk management framework, directing and overseeing its

implementation across the company.

❖ Understanding Regulatory environment

The Board has paid due attention to the importance of understanding and complying with

the regulatory framework. At the beginning an employee undergoes an induction

program and is taught that compliance with regulations is essential. A mechanism has

been put in place to keep employees at all levels abreast and aware of the implications of

changes in the regulatory framework and various methods are adopted to communicate

such changes. The company's compliance officer will consult with management and help

enable this process. In addition, training programs and workshops are conducted at

regular intervals and regulatory requirements are achieved through a user-friendly

approach. The Board of Directors is kept informed of changes in the regulatory

framework and its impact through appropriate forums, both externally and internally.

❖ Business Continuity Management System

AFC's (BCMS) framework includes business continuity, disaster recovery, crisis

management, incident reporting, emergency management and emergency planning

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activities. These activities will ensure that AFC is committed to serving its customers,

employees, shareholders and suppliers with minimal business disruption in the event of

unforeseen disruption to its business operations due to man-made, natural disasters or

technical failure. AFC has achieved BCMS accreditation through DNVGL.

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7 MANAGEMENT'S PARTICIPATION IN MAINTAINING THE

QUALITY OF THE REPORT EXPECTED BY THE COMPANY'S

STAKEHOLDERS.

In times of uncertainty, the strength of the balance sheet is critical, thus they ensured that

they had sufficient capital to support their strategic growth, to meet stakeholder

expectations while safely cushioning they against any potential future stresses.

❖ Sustainable Development

They aim to strike a balance between economic, environmental and social sustainability

across all facets of their business in order to provide sustainable value to their

stakeholders.

❖ Stakeholder Satisfaction and Transparency.

Meeting the needs of stakeholders is crucial towards establishing business sustainability

and growth. AFC maintains efficient engagement channels with all its stakeholders to

identify their changing requirements in order to pro-actively cater to their needs and

expectations.

❖ Sound Leadership

They have a capable and skilled board of directors who contribute practical knowledge

and experience from a range of diverse fields. They have four executive directors out of

their eight total directors, who see to it that board decisions are carried out promptly.

The Board of Directors is committed to adhering to the corporate governance principles

of the Company and furthermore has adopted a Corporate Governance Charter including

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therein the procedures and processes governing the different participants in the

organization– such as the Board, Executive Management Staff, Middle Management.

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8 DISCUSSION AND CONCLUSION

In compliance with the Corporate Governance Principles, the board of directors created

the Disclosure Policy. The board of directors also has the authority and responsibility to

manage, implement, and maintain the pertinent policy as well as to notify the public

through disclosures. The Corporate Governance Committee's analyses and findings on

the level of conformity with the principles, advancements in and practices of the law

aimed at ensuring full compliance with the corporate governance principles, and ideas

for improving a Corporate Compliance Report is created once a year and given to the

board of directors to assess the extent of compliance with the Corporate Governance

Principles in terms of scope and quality. The Under secretariat of Treasury receives a

copy of the report. Additionally, the Corporate Governance Committee meets

periodically throughout the year to assess the Disclosure Policy's requirements.

The members of the board of directors and the general manager of our company may

provide information about our company's strategy, goals, and expectations, evaluations

of previous performance, information about targets and vision, and other disclosures not

otherwise required by law.

On other matters, information may be disclosed by the CEO or business personnel the

CEO deems suitable.

In order to enlighten the public through disclosures, our company, adopting an active

approach towards adoption of the Corporate Governance Principles, takes every effort to

comply with the appropriate regulations and to follow the best practices from across the

world.

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The tools and procedures that our organization will employ to comply with financial

legislation when making disclosures,

• Public Disclosure of Financial Statements

• Annual Report

• Website

• Shareholder Meetings

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9 REFERENCES

Darrough, M. N., 1993. Disclosure policy and Competition: Cournot Vs. Bertrand. The

Accounting Review, 68(3), pp. 534-561.

Gunawan, H. & Lina, E. O., 2015. Mandatory and Voluntary Disclosure of Annual

Report on Investor Reaction. International Journal of Economics and Financial Issues, ,

Issue 5, pp. 311-314.

Leuz, C. & Wysocki, P., 2008. Economic Consequences of Financial Reporting and

Disclosure Regulation. Academia.

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10 ANNEXURE

These annexes related to the “Related party disclosures” set forth above. (Notes

that the Financial Statement in the annual report in Alliance Finance Company

PLC)

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