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.

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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.

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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.

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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

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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.

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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’.

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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.