Governance, Ethics and Professional Standards
Governance, Ethics and Professional Standards tests board and director responsibilities, ethical decision-making and the CA Sri Lanka professional framework. You must identify threats, apply safeguards and recommend defensible action.
Core rules
- Companies Act No. 7 of 2007 sets directors’ duties and financial reporting and audit requirements; directors must act in the company’s best interests and avoid conflicts.
- The CA Sri Lanka Code of Ethics applies the fundamental principles of integrity, objectivity, professional competence and due care, confidentiality and professional behaviour.
- Identify threats: self-interest, self-review, advocacy, familiarity and intimidation. Evaluate them, then eliminate or reduce to an acceptable level with safeguards such as independent review, rotation or declining the engagement.
- Independence covers both fact and appearance; audit committees should comprise independent non-executive directors with financial expertise.
- Related-party transactions need disclosure and, where material, independent approval. Whistleblowing channels protect disclosure in the public interest.
Worked example
A CFO asks the finance manager to reduce a doubtful-debt provision to meet a covenant. The finance manager faces an intimidation threat and a self-interest threat if a bonus depends on the result. The correct response is to apply SLFRS 9 evidence, refuse the unsupported adjustment, document the rationale, and escalate to the audit committee or those charged with governance. If pressure continues, seek advice under the firm’s ethical hotline or CA Sri Lanka guidance; confidentiality does not prevent reporting a legal or regulatory breach through proper channels.
Traps
Calling an adjustment immaterial without basis; treating confidentiality as absolute; relying on a safeguard that a third party would not accept; and ignoring governance escalation.