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VOL 2 ISSUE 4 July/August 2010
‘Sustainability’ is a word that has gained much interest, discussion and debate in the past few years.
In an era where the ecological balance of our planet is fast disappearing, and share price based measures drive a
short-term perspective towards result generation – need for sustainable business conduct undoubtedly hits the
headlines. In response to this dire need of the hour the Prince’s Accounting for Sustainability Project (A4S) and
the Global Reporting Initiative (GRI) joined forces to form the International Integrated Reporting Committee (IIRC),
earlier this month.
The key objective of IIRC is to create a globally accepted framework for accounting for sustainability. It aims to
develop an integrated format that communicates financial, environmental, social and governance information in a
clear, concise, consistent and comparable manner. The IIRC unites multi-disciplinary representatives from civil
society and the corporate, accounting, securities, regulatory, NGO, IGO and standard-setting sectors. As a global
professional body, CIMA is well represented in this initiative which intends to help develop more comprehensive
and comprehensible information about an organisation’s past and future performance, to meet the needs of the
emerging, more sustainable, global economic model.
Finally, a special note of ‘Thank you’ is extended to the contributors of the current issue of The CIMA Edge.
Nilushika Gunasekera.
News and events World congress of accountants 2010 will take
place in Kuala Lumpur, Malaysia from 8 to 11 November 2010
CIMA Global Business Challenge concluded this
August with immense success. The South Asian and Middle Eastern region was well represented at this global competition with finalists from Sri Lanka, India, UAE, Pakistan and Bangladesh. Sri Lanka Upcoming events CIMA Technical Symposium 2010
‘Mending the soul of business’ 24
November 2010 | Cinnamon Lakeside |
Colombo
Marketing in economic recovery by Prasanna
Perera 8 September | Galadari Hotel
Past 2010 Business Leaders Summit held on 28-29
July at the Cinnamon Grand hotel, was a resounding success as the timely theme ‘Re-imagine; Re-create’ captured Sri Lanka’s focus towards economic development.
Evening discussion on budget highlights 2010
was held on 5 July at the CIMA auditorium. Bangladesh CIMA and ICMAB signed an agreement to allow
mutual advanced entry for members into both of the accountancy bodies’ professional examinations.
CIMA Sri Lanka Division
Contents: feature articles
Evening discussion on budget highlights
The impact of the 2010 budget proposals on the Sri
Lankan development drive was the key focus of this
technical discussion. An informative and thought
provoking economic and business analysis was
followed by a participative, eagerly debated panel
discussion.
Green is the colour of life at Brandix
From reducing canteen waste to investing in
sophisticated air-conditioning, one of Sri Lanka’s
leading apparel exporters is living its mission to be an
eco friendly manufacturer in the forefront of its CSR
and environmental commitments.
Journey of Islamic finance
With increased sources of funding, a strong ethical
framework instilled in its financial products and an
equitable level of profit sharing between investor and
the investment firm, Islamic finance is fast expanding
its customer base worldwide.
Corporate reporting is no longer working
A global study is set up to explore the changes
needed to make corporate reporting fit for purpose in
future. Please email your comments to
technicalservices.srilanka@cimaglobal.com
CIMA mid-size business confidence monitor 2010,
Sri Lanka - Highlights of quarter two
The highlights of the survey reveal that overall
business confidence among mid sized firms has
increased, indicating a positive trend in investment
initiatives and entrepreneurship in Sri Lanka.
CONTENTS
1 Evening discussion
on budget highlights 2010 2 Green is the colour of life at Brandix 3 The journey of Islamic finance 4 Making corporate reporting fit for purpose 5 CIMA mid size business confidence survey
Disclaimer: opinions
expressed are the
contributors’ own and
do not necessarily
represent the views
of the institution or
the organisations by
which they are
employed.
Members and
partners are cordially
invited to contribute
to The CIMA Edge by
email to
nilushika.gunasekera
@cimaglobal.com
feature article
CIMA evening discussion on budget highlights 2010
This article is written based on the deliberations at the evening discussion on budget highlights held on 5 July 2010 at the CIMA Sri
Lanka division. Dirk Pereira, CEO of Union Assurance PLC and Deputy Chairman of the CIMA Board, N R Gajendran, Partner of
Gajma & Company and Dr Anila Dias Bandaranaike, Retired Assistant Governor of the Central Bank of Sri Lanka deliberated at this
forum. The deliberations were followed by a panel discussion moderated by Sriyani Ranatunge, Vice President of DFCC Bank, and
was participated by Shiromal Cooray, Managing Director of Jetwing Travels (Pvt) Ltd, and the speakers.
Attempts to reduce excessive tax rates on personal and
corporate income, and tax on banking and financial institutions.
Plans to eliminate adhoc and unproductive tax concessions
offered by the BOI. This will create a level playing field between
the BOI and non-BOI companies.
2.4 Impact to the business sector
Encourage domestic value addition by providing raw material
and intermediate inputs at duty free prices, while taxing
commodities that can be developed domestically at a high rate.
Encourage differentiation and value addition by imposing
relevant taxes on exports in raw form.
Increase cultivation by 100,000 hectares of which 40,000
hectares will be in the northern and eastern districts.
Introduce a comprehensive framework to encourage agriculture
and livestock.
Introduce a new incentive scheme to encourage textile and
garment industry exporters to enhance competitiveness and
penetrate new markets.
Target 2.5mn tourist arrivals generating foreign exchange
earnings of around USD 2.8bn by 2016. Investment
opportunities in tourism over the next six years are estimated to
be around USD 3bn.
Additional room requirement to accommodate the hike in
tourism is estimated at 40,000. This creates opportunities for
construction industry. Seven resorts are already identified to
attract investment.
Encourage a knowledge economy capitalising on IT and
business process outsourcing.
Advocates medical research and next generation drugs.
Enhance the skills of labour force looking for overseas
employment to enable higher earning potential.
Plans to revive the SME sector.
2.5 Infra-structure and socio-economic development
Invest on creating a ‘mine-threat-free’ country and expedite the
balance resettlement of internally displaced persons.
Develop a comprehensive medium to long-term plan to
reconstruct and transform the conflict affected areas.
Plans to transform the overall transportation system.
Plans to augment power generation capacity, and focus on
renewable energy initiatives to build a diversified power
generation strategy.
Plans to enhance and streamline healthcare services, and
promote indigenous medicine as a supplement.
Plans to continue work on irrigation enhancement, provision of
quality water, and industrial use and development of modern
sewerage systems.
Rural and urban city development programmes are underway.
1. Overview
The 2010 transition budget is a road map or a vision document to
set the stage for Sri Lanka’s post war accelerated developmental
initiatives. It identifies the key national needs, and contains a mix
of current, medium and long-term plans. It is a speech of intent,
where specific implementation details of the policies will have to
be considered in the next budget. Therefore, it builds the ground
for the 2011 budget which is planned to be presented to the
parliament in November.
2. Key highlights of the 2010 budget proposals
2.1 Fiscal framework
Phase out the historically high budget deficit in order to reduce
the debt burden and strengthen the financial position.
Manage the operational expenditure well within the income by
gradually increasing the government revenue and economising
operational expenditure.
Maintain public investment in the range of 6% to 7% of GDP to
support infrastructural development. This will in turn induce
private sector investment.
2.2 Budget estimates
The budget estimates for 2010 are depicted in the below table.
Table 2.1: Budget estimates for 2010
Description 2009 (Rs. bn) 2010 (Rs. bn)
Total revenue 699.64 817.79
Tax revenue 618.93 729.01
Non-tax revenue 80.71 88.77
Grants 25.92 23.20
Total revenue and grants 725.57 840.99
Total expenditure 1201.93 1279.82
Recurrent 879.58 928.34
Public investment 330.45 361.48
Other (8.1) (10)
Revenue surplus/(deficit) (179.93) (110.55)
Budget deficit (476.36) (438.84)
Total financing 476.36 438.84
Total foreign financing 83.89 123.5
Total domestic financing 392.48 315.34
Source: Budget speech 2010.Summary of the budget 2009 – 2010. p. 87
2.3 Taxation
The existing tax system will continue for the balance part of the
year.
New tax concessions or revenue proposals are not introduced
through this budget.
Government will ensure mid-term taxation system is revenue
buoyant, broad based, business friendly and equitable.
feature article
A ten year conservation programme will be implemented to
protect Sri Lanka’s cultural heritage.
All development initiatives will be conducted in line with
environmental considerations.
2.6 Benefits to the public through the 2010 budget
These benefits are depicted in the below table.
Table 2.2: Benefits provided to the general public
Activity Budget
provision
Free text books, nutritional food, school uniforms,
subsidised transport and scholarships to school children
Rs. 7.4bn
Enhance nutritional needs of around 74,000 expectant
mothers and infants
Rs. 2.5bn
Distribute dry rations and food to around 25,000 displaced
people living in welfare centers.
Rs. 7.5bn
Extend income support for the total of low income families
benefitting under the ‘Samurdhi’ programme
Rs. 9.3bn
Provide social security to public servants and disabled
soldiers
Rs.
102.5bn
Fertiliser subsidies, subsidise credit and procurement of
paddy at the guaranteed price to around 2mn farmers
Rs. 35bn
Supply drugs and pharmaceuticals through government
healthcare facilities to around 50mn patients
Rs. 13.3bn
Subsidised transport of Sri Lanka Railways and Ceylon
Transport Board
Rs. 6.6bn
Provision of 100,000 new water connections in 2010 Not given
Provision of 250,000 new electricity connections in 2010 Not given
Rehabilitation of national, provincial and rural roads, and
development of expressways and brindges
Not given
3. Economic implications of the 2010 budget proposals
The twin objectives of high spending on infrastructure and public
welfare along with measures to reduce the deficit are difficult to
be viewed as viable or realistic, considering the present
economic development rate.
Past records indicate the country has often fallen short of its
targets in terms of annual growth, inflation, and domestic and
national savings. Therefore, it is questionable whether the 2010
targets too will precisely be achieved. Similarly, the projected
4. Highlights from the panel discussion
Tourism: Sri Lanka requires a focused strategy regards tourism
and how it should be marketed. Businesses still encounter
bureaucracy in relation to the number of approvals required to
commence leisure sector projects, and the time required for each
approval is not at a satisfactory level. As a result the analysis done
on projects may be outdated by the time approvals are received.
Further, Sri Lanka is still considered a ‘low yield’ sector in air
transportation due to the demand from Europe being lower in
relation to other sectors. Therefore, flight operators are reluctant to
schedule more flights. The present airport and overall
infrastructural capacity should be reviewed in terms of its
sufficiency to cater to the increasing demand in tourism.
Go east vs. go west pertaining to exports: India and China are
emerging economies in the east with massive markets, which
could lead to long-term profit opportunities. In contrast the west is
a consumption driven market that don’t have the liberty of
production due to high labor costs. Therefore, both options should
be carefully scrutinised.
Commercial hub: Sri Lanka is looking at being a commercial hub in
the short to medium-term providing financial services, ports,
aviation and infrastructure. Provision of these services will result in
establishment of relationships with potential investors and trading
partners.
Act fast: Sri Lanka should respond expeditiously to attract foreign
investment and capitalise available business opportunities as they
will not exist for too long and could be lost forever.
The 2010 budget provides a broad policy framework with specific
fiscal targets, but does not provide a specific strategy or
implementation plan for achievement of those objectives. This can
perhaps be expected in the forthcoming budget in November.
Further, it advocates public and private sector cooperation to drive
economic growth – which is the way forward for Sri Lanka. The
initiatives taken by the government to fast track development in the
wake of ending the war, and action taken to boost investor
confidence is commendable, and should be further pursued.
Left to right: Sriyani Ranatunge, VP of DFCC Bank (panellist cum moderator), Shiromal Cooray, MD of Jetwing Travels (panellist),
N R Gajendran, Partner of Gajma & Co (speaker) Dr Anila D Bandaranaike, Former Assistant Governor of Central Bank of Sri
Lanka (speaker).
revenue had often fallen short,
and recurrent expenditure has
arisen in comparison to the
targets. This places a question
on the achievement of 2010
revenue and expenditure
targets. These targets should
be measured quarterly to
ensure achievement.
The plan heavily depends on
attracting high level of private
sector investment
expeditiously.
It advocates an unusual mix of
a traditional ‘home-grown self
sufficiency status’ and a 21st
Century ‘service hub status’
which could well succeed in
today’s global economic
context.
feature article
Green is the colour of life at Brandix
1. Introduction/overview
The Brandix group specialises in manufacturing casual bottoms,
intimate and active wear, textiles, knitted fabrics, sewing and
embroidery thread, accessories and hangers, wet processing,
finishing and fabric printing. Brandix is a preferred solutions
provider to some of the world’s leading apparel brands, including
Gap, Marks and Spencer, Victoria’s Secret, NEXT, Lands End,
Abercrombie and Fitch, and Tommy Hilfiger.
Brandix’s CSR model is based on the belief that the depletion of
natural resources consumed by their business operations must be
restored to the environment so that their presence will not be
detrimental to future life.Their Eco Centre in Seeduwa is the
highest-rated green apparel manufacturing facility in the world
and is the pride of the 25,000-employee group. It lead to the
group obtaining the energy globe award in 2009, and also
resulted in the group being adjudged the National Winner for Sri
Lanka. Brandix and other leading manufacturers in Sri Lanka aim
to produce guilt-free garments in many aspects. Brandix joins
force in this national objective by operating in greener plants
besides other initiatives. This article explores some of the key
initiatives taken by Brandix to be greener and friendlier towards
the planet. It also explores how these initiatives were
implemented and the derived outcomes.
2. Going green: implementation through effective processes
‘Going green’ is a corporate buzzword that is often an inspiration
for catchy slogans and little else, but not at Brandix Lanka
Limited. With its enduring commitment to eco-friendly
manufacturing, maximising customer value addition and focus on
optimal use of available resources, Brandix continuously develops
processes which aim to maintain required output levels using up
minimal carbon based energy sources.
Green manufacturing substantially reduces the carbon footprint,
generates significant savings in energy and water conservation,
minimises solid waste to landfill and promotes replenishment of
natural resources. That is why green manufacturing processes
are now being implemented at more than 27 manufacturing
locations in Sri Lanka, India and Bangladesh. Brandix will be
converting its factories to green manufacturing over the coming
years, with a firm pledge to reduce the group’s carbon footprint by
as much as 30% by 2012. Investments on natural resource and
energy preservation will benefit the company not only by
reduction of the direct cost of power, water and soil preservation,
but also by developing a sustainable business model that will
contribute towards reducing climate change and preservation of
carbon based energy sources.
‘Clean technology, waste management and environmental preservation have been inextricably woven into the very fabric of our
business. The adoption of best practices and global standards has not only benefited us qualitatively, but has also brought a
considerable quantitative benefit into both our top and bottom line performances through effective cost and waste management,
infusion of technology and higher productivity. We appreciate that by constantly meeting and exceeding global standards, the value
addition and benefits extended to our customers have been overarching and have strengthened relationships and image building.’ The
Brandix Lanka Ltd. ‘Green agenda’ published in the corporate website signifies its commitment for sustainable business success.
Midway in this enterprise-wide initiative to reduce its carbon
footprint, the Brandix group has become possibly the first apparel
manufacturer worldwide to be in a position to declare the carbon
footprint for every individual item it produces. The group
completed an enterprise-wide greenhouse gas inventory in 2008
and calculated its carbon footprint according to the guidelines of
the Greenhouse Gas Protocol (WBCSD/WRI) and the
Intergovernmental Panel on Climate Change (IPCC).
The audit covered more than 85 emission sources at group
companies, subsidiaries, Brandix-managed joint ventures and
associate companies, indicating total CO2 emissions of 86,322
MT per year. Energy efficiency projects undertaken by individual
companies in 2009 alone resulted in a collective reduction of
1,800 MT of CO2, about 7% of the group’s total carbon footprint.
Brandix expects to have reduced its group-wide carbon footprint
by a further 10% by the end of 2010 and has reported that it is
well on target in achieving the overall reduction. Brandix which is
WRAP, SA8000, Fair Trade, OE100, GOTS, ISO 9001, ISO
14001 and OHSAS 18001 certified in addition to possessing an
Environmental Protection License from the Central Environmental
Authority, attempts to reduce the waste generated by its
processes and continuously monitors noise levels, ambient air
quality, temperatures and treated waste water to ensure
standards compliance and eliminate discharge of toxic gases.
At the forefront of Brandix’s sustainability drive is its Green
Factory at Seeduwa which in September 2008 was rated platinum
under the Leadership in Energy and Environmental Design
(LEED) Green Building Rating System of the US Green Building
Council (USGBC).
The 130,000 square-foot Brandix Eco Centre, which is the group’s
lead manufacturing plant for Marks and Spencer, achieved a
score of 76 (12 points higher than the 64 required for platinum
status) on the 85-point LEED certification system, setting a global
benchmark for low energy consumption, water conservation, solid
waste management and low carbon emissions. The factory has
achieved a reduction of carbon emissions by 60%, an energy
saving of 46%, a reduction of water consumption of 63% and zero
solid waste to landfill.
feature article
divisions and competing organisations. This will be a key function
in a company’s value network. Attention is also being focused on
waste management. Efforts are underway to divert solid waste
from landfill by using the 3R (reduce, re-use and recycle) method.
Among the many examples are: reduction of food waste from
canteens, reusing of poly bags in packaging and the use of
recycled paper wherever possible.
Nothing, it would appear, is too small or too big to be ignored in
this drive for eco-friendliness. The fabric printing process requires
high use of water and results in high volumes of water discharge.
Several Brandix plants have installed wastewater treatment plants,
complying with Board of Investment (BOI) standards. Chemical
pre-treatment of raw waste water controls the performance
parameters of Biological Oxygen Demand (BOD), Chemical
Oxygen Demand (COD) and pH levels with samples analysed
monthly by the BOI. These plants ensure that all their chemicals
and dyes meet global standards and that it is compatible with
company’s environmental policy..
5. Conclusion
Preservation of the planet is the responsibility of individuals and
organisations alike. This responsibility on the side of the
organisation should be linked to its corporate strategy giving
direction towards building a long-term sustainable organisation.
Investment on eco manufacturing plants by some of Sri Lanka’s
top-notch manufacturers such as Brandix is the right way forward.
In recognition of the Brandix group’s sustainable business drive
through energy conservation and environmental protection, it has
received the following accolades. Brandix Lanka Limited was
awarded a Platinum rating in 2009 in the country’s first ‘Report
Card’ on corporate accountability, a benchmarking exercise
undertaken by STING Consultants and published in the Lanka
Monthly Digest (LMD) magazine. The main award in the ‘Large
Scale Manufacturing’ category at the first Sri Lanka National
Energy Efficiency Awards was presented to Brandix as part of the
government’s Vidulka Energy Week programme, recognising the
group as the most energy efficient among the largest
manufacturers in the country. Energy consumption data of three
years was evaluated by the Sri Lanka Sustainable Energy
Authority (SLSEA), a unit of the Ministry of Power and Energy, to
determine the winners in five categories for this award. The group
was recognised to be among the top 10 best corporate citizens for
the year 2009 by the Ceylon Chamber of Commerce. Brandix
Essentials Ratmalana received the LEED gold certification for new
construction in December 2009 awarded by the USGBC. These
accolades showcase the brand building and intangible benefits
that can be derived by a company’s positive contribution to
environment.
feature article
3. Green operations: measurement of performance
The achievements at this location alone provide food for thought to
other business entities seeking to ‘green’ their operations.
Figure 3.1: Measuring actual performance with target
Environmental impact indicator Target Achievement
Reduction of carbon footprint 46% 60%
Reduction of electricity consumption 40% 50%
Reduction of fuel consumption 10% 24%
Reduction of overall energy 40% 46%
Reduction of water consumption 50% 63%
Reduction of solid waste sent to landfill 60% 100%
Another group company Brandix Finishing Ltd (BFL), exerts
innovative efforts to achieve zero disposal of solid waste and
sludge to landfill, by converting its effluent to environmentally,
economically and socially relevant by-products. The sludge
generated from garment washing, dyeing and finishing can be
turned into solid construction bricks and the decomposing
biological sludge and canteen food waste produces bio gas and
organic fertiliser.
In addition, the Brandix group trials Chemical Leasing (ChL), a
new concept methodology to promote more efficient and
sustainable management of chemicals in manufacturing
processes. The concept, promoted worldwide by the United
Nations Industrial Development Organisation (UNIDO) envisages
converting suppliers of chemicals from sellers of products to
providers of a service, whereby they sell the functions performed
by their chemicals, and the functional units become the main basis
for payment. This makes efficient consumption of chemicals a
priority for their supplier, because the chemicals consumed
become a cost rather than a revenue factor.
The end result is a reduction of excessive use of chemicals that
ultimately benefits the environment. Further innovative changes to
business processes focusing on overall reduction in scarce natural
resources and minimising negative impact on the environment will
facilitate business sustainability in the long- term.
4. How ‘going green’ is achieved throughout the group
Today, all manufacturing operations of the Brandix group are
working towards reducing greenhouse gas emissions by cutting
down on energy consumption. Steps taken include better control of
the air conditioning temperature; switching off air conditioning,
lights, computers and other electrical appliances when not in use;
using renewable energy such as bio mass boilers; car pooling and
using electrically powered vehicles for transportation within the
plants. Incorporation of such measures to a company’s KPI’s will
make measurable targets that could be benchmarked across
feature article
The journey of Islamic finance by Fathima Sarah Afker
Most of us have seen, heard or read of the infamous Islamic
finance industry. Product innovation, halal awareness, relaxed
regulations and improved infrastructure have enormously aided
this finance system to reach out to the masses from the niche in
which it previously operated. Islamic finance is a finance system
that has evolved over centuries from the time of Prophet
Muhammad (peace be upon him) whose reported sayings and
actions together with the Quran (Holy Book) and the Fiqh
(Islamic Jurisprudence) form the basis of Shariah (Islamic law).
The compliance to Shariah applies to every aspect of a Muslim’s
life including his financial dealings. The key attributes of the
Islamic Finance system entail the prohibition of interest,
speculation, gambling, unjust enrichment and investments in
certain industries that have an adverse impact on the society.
These industries include tobacco, pornography, alcohol etc. The
principles also advocate the sharing of risks and rewards in a
just and equitable manner, where the risk taker is compensated
by a higher reward.
1. The origins of Islamic banking and finance
Islamic finance originated more than four decades ago.
Presently we are at the tail end of the fifth decade and have
experienced that the Islamic finance industry has grown like no
other. The industry has been strongly pushed by the resurgence
to meet the financing needs of Muslims to being widely accepted
by the non-Muslim world. Countries are found competing against
one another to promote themselves as the Islamic finance hubs
in their Continent and globally as a whole. The first decade
entailed the establishment of the Pilgrims Fund Board in
Malaysia (1962) and the Mitt Ghamr Savings Project established
in Egypt (1963) by Dr. Al Najjad who laid the foundation for Profit
& Loss Sharing concept. This was used by the project as a
means of distributing the returns.
The second decade commenced with the Nasr Social Bank
absorbing the Mit Ghamr project (1972) .This decade records a
milestone in the history of modern Islamic finance with
establishment of the Islamic Development Bank, Saudi Arabia
and the Dubai Islamic Bank, UAE (1975). This marked the
foundation of commercial banking based on Islamic principles.
The decade saw the first ‘International Conference on Islamic
Economics’ in Saudi Arabia (1976) and the establishment of
Centre for Research in Islamic Economics in Saudi Arabia
(1978) closely followed by Insurance Company of Sudan (1979).
Many other Islamic financial institutions including Malaysia’s
Berhad Islamic Bank emerged in the third decade of growth,
where the concept of commercial banking was extended to
project finance and syndications.
The decade concluded with the establishment of the Accounting
and Auditing Organisation for Islamic Financial Institutions
(AAOIFI) in Bahrain (1991). The fourth decade (1992 to 2001)
saw many other successes including the launch of Harvard
Islamic finance programme, Dow Jones Islamic Index etc.
By this era the Islamic leasing (Ijarah) and Islamic
methodologies for equity and fund management were
developed.
The fifth decade, the period at the time of writing, has by far
been the most successful one for the Islamic finance and
banking industry. The innovation of several structured alternative
assets particularly the securitisation within the Islamic
permissibility (Sukuk) being launched in Muslim and non-Muslim
states alike took place in this decade. The rise in acceptability of
Islamic banking and finance can be seen through the legislative
changes and the launch of key large Islamic banks such as the
Islamic Bank of Britain in the UK and Islamic Bank of Asia in
Singapore. The decade saw continued and committed
improvement in the infrastructure for the industry with the launch
of the Establishment of Islamic Finance Standards Board in
Malaysia, the Liquidity Management Centre in Bahrain etc.
2. Regulators and infrastructure of Islamic banking and
finance
A critical success factor to the growth of this industry was
continued regulation and new innovation. Recently, the growth
of this ebullient industry has come under scrutiny. Therefore,
further regulation and specification of accounting treatment by a
standard-setting board is required. A brief description of some of
the key bodies engaged in this task is outlined below.
Accounting and Auditing Organisation for Islamic Financial
Institutions (AAOIFI)
AAOIFI is a not-for-profit organisation based in Bahrain. Its main
objective is to maintain and promote Shariah standards for
Islamic financial institutions, participants and the overall industry.
AAOIFI achieves this by defining acceptable standards for
various areas such as accounting, governance, ethics,
transactions and investments.
Islamic Financial Services Board (IFSB)
Based in Kuala Lumpur, Malaysia, the IFSB is the international
standard-setting organisation that promotes and enhances the
soundness and stability of the Islamic financial services industry.
The IFSB issues global prudential standards and guiding
principles for the industry, namely: capital adequacy, corporate
governance, risk management and transparency.
International Islamic Financial Market (IIFM)
The primary focus of IIFM lies in the standardisation of certain
Islamic products, documentation and related processes. IIFM
was founded as an infrastructure institution with the mandate to
take part in the establishment, development and promotion of
Islamic capital and money market. The IIFM operates with the
collective efforts of its permanent members which include central
banks and government agencies of Bahrain, Brunei Darussalam,
Indonesia, Malaysia, Sudan, Pakistan, United Arab Emirates
and the Islamic Development Bank based in Saudi Arabia.
Sarah is an Associate Member of CIMA and has completed her Islamic finance qualification from the Chartered Institute of
Securities and Investment (CISI UK). She is currently serving as an analyst in the tax and regulatory division of KPMG Ford
Rhodes, Thornton & Co. handling a diverse portfolio of clients from myriad industries.
feature article
International Islamic Rating Agency (IIRA)
This is the sole rating agency that provides capital markets and
the banking sector in predominantly Islamic countries with a rating
on a full array of capital instruments and speciality Islamic
financial products. The IIRA also engages in enhancing the level
of analytical expertise in Islamic financial markets.
International Research and Training Institute (IRTI)
This institute undertakes research and provides training and
information services to the member countries of the Islamic
Development Bank and Muslim communities in non-member
countries to help bring their economic, financial and banking
activities into conformity with Shariah. The institute promotes
economic development and cooperation amongst these parties.
3. The present state and future aspirations of Islamic banking
Today, the Islamic banking and finance industry broadly operates
on a four tier model.
The Islamic banking windows
Independent branches of conventional banks rendering Islamic
finance services
Fully fledged subsidiaries engaged purely in Islamic banking
Fully fledged banks
According to ‘The Banker's Top 500 Islamic Financial Institutions’
rankings, assets held by fully Shariah-compliant banks or Islamic
banking windows of conventional banks rose to $822bn in 2009,
accounting for a 28.6% increase from the previous year.
Today, Islamic finance has spread from the borders of the Middle
East (or rather the Muslim world) to most continents around the
globe. This system which is perceived and proven to be a better
alternative to finance has steered many countries to amend laws
to facilitate the playing field for Islamic finance over its
conventional counterparts. The sea of misconception that ‘Islamic
finance is only for those of Islamic faith’ has been abridged thus
far. Islamic finance is undoubtedly faith based but, is no longer
purely faith driven. Non-Islamic states have been as successful as
Muslim states in advocating the principles of Islamic finance.
The ‘Islamic’ dimension is slowly fading away and the finance
system is gaining momentum as the system is just and equitable.
The gathering of the momentum does inevitably take time, and
those who started early have indeed been more successful at
benefiting from the change than the late comers. Yet, there is
space and time for everyone to embrace the system and make a
difference in their economic outlook. If I may borrow a leaf from
President Obama’s book ‘yes we can’.
feature article
Corporate reporting is no longer working
What needs to be done to make it fit for purpose in the future?
The financial crises of the last decade have demonstrated
serious shortcomings in the understanding of corporate
business models, the alignment of incentives, and the
management of risk. The current corporate reporting model
has not highlighted where these shortcomings exist. This
failing is exacerbated by the pace of change of business
today, with a plethora of new challenges impacting long-term
success, including a shift in the global balance of power,
resource constraints and climate change. This landscape
provides a compelling reason to review what the major
barriers to effective reporting are and how these might be
overcome.
The Chartered Institute of Management Accountants,
PricewaterhouseCoopers LLP and Tomorrow's Company are
setting up a global study to explore what changes are needed
to make corporate reporting fit for purpose for the future. By
corporate reporting we mean all the mechanisms by which
companies communicate their performance and activity to
their stakeholders, with a particular emphasis on the flow of
information into the investment community. We are focusing
on the following areas.
The weaknesses and strengths in the current system.
The barriers obstructing the evolution of corporate reporting.
Solutions you propose to rectify these weaknesses.
To what extent is there a shared understanding about the purpose of corporate reporting and the overriding objective of reporting standards?
To what degree are investors, accountants, standard setters and management incentivised to engage in any dialogue about changing the reporting model?
Is the level of technical knowledge and understanding of financial and non-financial information and metrics a barrier?
Are the transactional, regulatory, technological and other changes as a result of globalisation creating too much complexity and change for the system to deal with?
Who is best placed to change the system and what is needed to help them do this?
CIMA Sri Lanka division welcomes responses on any or all of the above areas to be used for a global research. Please email your responses to technicalservices.srilanka@cimaglobal.com on or before 15 September 2010.
CIMA survey
1. Perception towards economy and business performance
82% of respondents believe that there is no recession in Sri
Lanka, a 14% increase from last quarter.
62% of respondents are confident about their business’
performance in the current economic climate, accounting for a
7% increase from last quarter.
54% of respondents say that their business is a risk manager, a
decrease of 15%; 27% say it is risk averse; and 19% say it is a
risk taker, a decrease of 5%.
2. Performance highlights in second quarter
Two thirds of the factors mid-size businesses use to assess their
business performance over the last quarter have not changed
since quarter one. These include particularly: imported products,
research and development budget, staff training budget, export
sales turnover, basic salaries etc. The performance highlights for
second quarter identified through the survey are illustrated in the
three figures 2.1, 2.2 and 2.3.
Figure 2.1: Financial highlights
Figure 2.2: Investment highlights
Figure 2.3: Employment highlights
62% 59%
37%
63% 64%
10% 17%
30%
4%14%
28% 24%33% 33%
22%
0%
20%
40%
60%
80%
100%
Turnover Domestic sales turnover
Export sales turnover
Net profit Overhead costs
Decrease
Stayed the same
Increase
41%30%
48%
43% 59%38%
16% 11% 14%
0%
20%
40%
60%
80%
100%
Capital investment Research and development
Marketing and advertising
Decrease
Stayed the same
Increase
41%
60%50%
38%
50%
30% 46%
49%
9% 10% 4%13%
0%
20%
40%
60%
80%
100%
No. of full time employees
Total salary package
Basic salary Staff training budget
Decrease
Stayed the same
Increase
Chartered Institute of Management Accountants
Sri Lanka Division
Colombo Office
356 Elvitigala Mawatha
Colombo 5
T. +94 (0) 11 250 3880
F. +94 (0) 11 250 3881
E. colombo@cimaglobal.com
www.cimaglobal.com/sl
CIMA midsize business confidence monitor 2010
3. Financing
67% of respondents say that access to loans and additional
credit was not difficult over the last quarter.
78% say that they had success in securing additional finance
over the last quarter.
The main reasons for seeking additional finance was: working
capital management, buying equipment and machinery,
refinancing, buying land, and improve premises and buildings.
Half of the respondents say that their relationship with their
bank stayed the same over the last 12 months, an increase of
9%; 35% say it improved and 15% say it got worse.
56% say that relationship with their bank is likely to improve in
the coming months, 36% say that it is likely to stay the same
and 4% say that it is likely to get worse.
4. Perception towards business performance next quarter
The respondent’s perception toward the next quarter’s
performance in seven key areas is illustrated in the below figure.
Figure 4.1: Expected business performance in third quarter
77%70%
52% 51%61%
42%
68%
4%11% 44%
36%
39%
49%
26%
19% 19%
4%13% 9% 6%
0%
20%
40%
60%
80%
100%
Turnover Net profit Capital investment
No. of full time employees
Total salary package
Research and development
Marketing and advertising
Decrease Stayed the same Increase
CIMA launched a mid-size business confidence survey in Sri Lanka, to determine the current level of ‘business confidence’
amongst medium size businesses. The survey for the second quarter completed in July 2010 with responses from 28 companies.
These companies were represented by 57% CIMA students and 43% CIMA members. Majority of the respondents were engaged
in full time employment in companies operating in industrial and service sectors.
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