| Code of Best Practice on Corporate Governance |
Bank’s Adherence |
| D - Accountability and Audit |
| D.1 - Financial Reporting |
Disclosure of an Assessment on the Position and Prospects of the Company
(Principle D.1 - The Board should present a balanced and understandable assessment of the Company’s position and prospects |
Bank attaches high priority to timely publication of quarterly and annual results with comprehensive details far in excess of the statutory requirements, ensuring a presentation of a balanced and understandable assessment of the Bank’s position and prospects, enabling both existing and prospective shareholders to make a timely and fair assessment of the Bank’s performance, prospects and informed decisions. Mediums of publication include printed materials, newspapers and the website of the Bank. The Bank strictly adheres to the accounting formats and other procedures laid down by the regulatory authorities such as the Central Bank and the Colombo Stock Exchange, in the submission of all periodic returns and other information. Price sensitive information is released to the regulators on a timely basis. The Financial Statements are prepared in accordance with the Sri Lanka Accounting Standards, which are based on the International Accounting Standards. Therefore, the Bank’s Financial Statements comply with the International Accounting Standards in all material respects, to the extent that International Accounting Standards have been adopted in Sri Lanka. |
| (Principle D.1.1 - The Board’s responsibility to present a balanced and understandable assessment extends to interim and other price-sensitive public reports and reports to regulators as well as to information required to be presented by statutory requirements) |
Annual Report should contain a Declaration by the Directors
(Principle D.1.2 - The Directors’ Report, which forms part of the Annual Report, should contain declarations by the Directors to the effect that: • The Company has not engaged in any activities, which contravene laws and regulations
• The Directors have declared all material interests in contracts involving the Company and refrained from voting on matters in which they were materially interested
• The Company has made all endeavours to ensure the equitable treatment of shareholders
• The business is a going concern, with supporting assumptions or qualification as necessary
• They have conducted a review of the internal controls which should cover financial, operational and compliance controls and risk management) |
Report of the Directors (now known as ‘Annual Report of the Board of Directors on the Affairs of the Company’) containing the subject declarations is given on Annual Report of the Board of Directors section of the Annual Report. |
Presenting a Statement Setting out the Responsibilities of the Directors for Financial Statements and a Statement by the Auditors about their Reporting Responsibilities
(Principle D.1.3 - The Annual Report should contain a statement setting out the responsibilities of the Board for the preparation of Financial Statements, together with a Statement by the Auditors about their reporting responsibilities) |
The Statement of Directors’ Responsibility for Financial Reporting.
Auditors’ Report on the Financial Statements of the Bank for the year ended December 31, 2007. |
Presenting a Management Report in the Annual Report
(Principle D.1.4 - The Annual Report should contain a Management Report, discussing, among other issues:
• Industry structure and developments
• Opportunities and threats
• Risks and concerns
• Internal Control Systems and their adequacy
• Financial performance
• Material developments in Human Resource/Industrial Relations Prospects for the future) |
This information is available in the Management Reports of the Annual Report.
Please refer the relevant pages:
| Informations |
Pages |
| Industry structure and developments |
21 |
| Opportunities and threats |
41 |
| Risks and concerns |
66 |
| Internal Control Systems and their adequacy |
63 |
| Financial performance |
24 |
Material developments in Human Resource/
Industrial Relations and Prospects for the future |
75 |
| |
|
This is given in the “Annual Report of the Board of Directors” on the Annual Report.
There have not been such situations in the past. However, should the situation arise, an EGM will be called for and shareholders will be notified. |
Declaration by the Board whether the Business is a Going Concern
(Principle D.1.5 - The Directors should report that the business is a going concern, with supporting assumptions or qualifications as necessary. The matters to which the Board should give due consideration when adopting the going concern assumptions are set out in the Code) |
Summoning an EGM to Notify the Shareholders if Net Assets Fall Below One Half of the Shareholders’ Funds
(Principle D.1.6 - In the event that the net assets of the Company falls below one half of the Company’s shareholders’ funds, the Directors shall forthwith summon an Extraordinary General Meeting (EGM) of the Company to notify shareholders of the position and of remedial action being taken) |
| D.2 - Internal Control |
Maintaining a Sound System of Internal Controls Covering Financial, Operational, Compliance and Risk Management to Safeguard Shareholders’ Investments and the Company’s Assets
(Principle D.2 - The Board should maintain a sound system of internal control to safeguard shareholders’ investment and the Company’s assets) |
Directors have put in place effective Internal Control, Risk Management and Compliance Systems to ensure that no Legal and regulatory provisions (Including Banking Act, Companies Act and Colombo Stock Exchange Code) are violated. A summary of the Risk Management ... |
Reviewing of the Effectiveness of Internal Controls Periodically by the Directors and Reporting thereon to the Shareholders
(Principle D.2.1 - The Directors should, at least annually, conduct a review of the effectiveness of the Group’s system of internal controls and should report to shareholders that they have done so. The review should cover all controls, including financial, operational and compliance controls and risk management) |
The effectiveness of the internal control systems is periodically reviewed by the Board Audit Committee and major observations are reported to the Board. It also ensures that effective internal and external audit procedures are in place and these functions are carried out by the Inspection Department which is ably assisted by five firms of Chartered Accountants approved by the Central Bank of Sri Lanka. The Board reviews the reports arising from the internal and external audits and monitors the progress of the Bank by evaluating the results against the budget and the industry performance. |
| (Principle D.2.2 - Companies, which do not have an internal audit function, should from time to time review the need for one) |
Not applicable. |
| D.3 - Audit Committee and Auditors |
Availability of an Audit Committee Comprising of Independent Non-Executive Directors and Reporting thereon in the Annual Report
(Principle D.3 - The Board should establish formal and transparent arrangements for considering how they should apply the financial, reporting and internal control principles and for maintaining an appropriate relationship with the Company’s Auditors) |
• A structured loss reporting process covering fraud or suspected fraud involving staff, damage or loss to Bank property, theft, customer misappropriations resulting in financial impact/losses, has been implemented
• Long outstanding items reflected in suspense accounts are reported quarterly
• A comprehensive compliance check list and exception reporting procedures are in place
• Formal systems are in place to continuously update the knowledge and skills of employees in order to foster the acceptance and participation in building effective controls • Bank maintains cordial relationships with the External Auditors
M/s. Ernst & Young |
| (Principle D.3.1 - The Board should establish an Audit Committee of at least three Directors, all three Directors, all Non-Executive, with written terms of reference which deal clearly with its authority and duties. The members of the Committee, a majority of whom should be independent Non-Executive Directors, should be named in the Report and Accounts) |
An active Board Audit Committee headed by the Deputy Chairman and represented by three other Non-Executive Directors is in place. The Managing Director attends the meetings by invitation. The Committee met four times during the year. The full report of this Committee including the terms of reference and specific tasks carried out during the year is given on this Annual Report. |
Maintaining appropriate relationships with the External Auditors to ensure their objectivity and independence.
(Principle D.3.2 - The duties of the Audit Committee should include keeping under review the scope and results of the audit and its effectiveness and the independence and objectivity of the auditors. Where the auditors also supply a substantial volume of non-audit services to the Company, the Committee should keep the nature and extent of such services under review, seeking to balance the maintenance of objectivity, independence and value for money) |
The subject activities are part of the duties of the Audit Committee. During the year, provision of non-audit services to the Bank by them was limited to tax consultancy work. |
| D.4 - Corporate Governance |
Disclosure of Good Corporate Governance Practices Adopted in the Bank
(Principle D.4 - Directors should be required to disclose the extent to which the Company adheres to established principles and practices of good Corporate Governance) |
In order to further strengthen the good corporate governance practices already in place in the Bank by identifying the latest best practices around the world and implementing them wherever necessary, the Bank periodically evaluates its practices vis-a-vis the OECD Principles of Corporate Governance, which is acknowledged world over as an important initiative in this sphere, the Code of Best Practice on Corporate Governance issued by The Institute of Chartered Accountants of Sri Lanka and the Code of Corporate Governance for Banks and Financial Institutions issued by the Central Bank of Sri Lanka.
The Bank is happy to note that the majority of the principles and practices recommended in these Codes are already in place in the Bank. All required actions are being taken to maintain this position and upgrade on areas, where necessary. The Bank also believes that with the adherence of the amendments made to the Banking Act and the proposed amendments to the Companies Act will improve the legal infrastructure and the regulatory framework relating to Corporate Governance of the Bank. Extent to which the Bank has complied with the Good Corporate Governance Principles is given as above in this Report. |
| (Principle D.4.1 - The Directors should include in the Company’s Annual Report a Corporate Governance Report, setting out the manner and extent to which the Company has complied with the principles and provisions of this Code) |