THE ROLE OF ACCOUNTING IN AN ORGANISATION Blog 2 | P2: The Accounting Function in the Context of Regulatory and Ethical Constraints A Case Study Reference: Hemas Holdings PLC, Sri Lanka

 

Introduction: The Accountability Imperative in Accounting

The accounting function does not operate in a vacuum. Every financial statement prepared, every transaction recorded, and every report published exists within a web of regulatory requirements, professional ethical standards, and societal expectations that collectively shape how accounting is practised. Far from being mere bureaucratic constraints, these regulatory and ethical frameworks serve as the pillars upon which trust in financial reporting is built. As the Institute of Chartered Accountants of Sri Lanka (ICASL, 2024) asserts through its Code of Ethics for Professional Accountants, the accounting profession is governed by fundamental principles including integrity, objectivity, professional competence and due care, confidentiality, and professional behaviour — principles that protect not just individual organisations but the broader financial ecosystem.

For Hemas Holdings PLC, one of Sri Lanka's most prominent publicly listed conglomerates, navigating the regulatory and ethical landscape is an essential and ongoing dimension of its accounting function. Operating across Consumer Brands, Healthcare, and Mobility sectors, and listed on the Colombo Stock Exchange (CSE), Hemas is subject to an extensive array of legal obligations, professional standards, and ethical commitments that collectively define the parameters within which its accounting function must operate (Hemas Holdings PLC, 2024a). This blog critically assesses the regulatory framework and ethical constraints governing accounting at Hemas Holdings, examining whether these constraints serve as limitations or as enablers of organisational integrity and stakeholder confidence.

1. The Regulatory Framework Governing Accounting in Sri Lanka

Sri Lanka's regulatory framework for accounting is multi-layered, drawing from legislative acts, professional body standards, and international reporting requirements. The principal legislation governing corporate financial reporting includes the Companies Act No. 7 of 2007, the Accounting and Auditing Standards Act No. 15 of 1995, the Securities and Exchange Commission Act No. 36 of 1987, and the Banking Act No. 30 of 1988 (IFAC, 2024; Wikipedia, 2024). Together, these legislative instruments establish the legal obligations of companies regarding financial record-keeping, auditing, and disclosure.

The Accounting and Auditing Standards Act No. 15 of 1995 is particularly significant, as it requires specified business enterprises (SBEs) — including publicly listed companies like Hemas Holdings PLC — to prepare financial statements in compliance with accounting standards set by the Institute of Chartered Accountants of Sri Lanka (CA Sri Lanka) (IFAC, 2024). These standards, known as Sri Lanka Financial Reporting Standards (SLFRS), are converged with International Financial Reporting Standards (IFRS), ensuring that Hemas's financial statements are internationally comparable and credible to global investors and partners.

Oversight of compliance with these standards falls under the Sri Lanka Accounting and Auditing Standards Monitoring Board (SLAASMB), an independent regulator established under the 1995 Act. SLAASMB monitors compliance by economically significant entities and has the authority to investigate failures and impose corrective actions (SLAASMB, 2024). Past SLAASMB enforcement actions against companies such as Nawaloka Hospitals PLC — cited for failing to maintain proper accounting records — illustrate the real consequences of regulatory non-compliance (SLAASMB, 2024). For Hemas Holdings, maintaining full compliance with SLAASMB requirements is not optional; it is fundamental to its continued listing on the CSE and its reputation among investors.

The Companies Act No. 7 of 2007 further mandates that company audits can only be performed by a Registered Auditor holding a practising certificate from CA Sri Lanka (Wikipedia, 2024). This requirement safeguards the independence and quality of the external audit process, which serves as a critical check on the accuracy of financial reporting. Hemas Holdings' financial statements are audited by major international accounting firms, providing additional assurance to stakeholders that the group's reported financial position and performance are both accurate and compliant with applicable standards.

2. International Standards and Sustainability Reporting Requirements

Beyond domestic legislation, Hemas Holdings PLC is increasingly subject to international standards that expand the scope of its accounting and reporting obligations. For FY 2023/24, Hemas prepared its integrated Annual Report in accordance with GRI (Global Reporting Initiative) Standards and aligned its investor-focused disclosures with IFRS S1 (General Requirements for Disclosure of Sustainability-related Financial Information) and IFRS S2 (Climate-related Disclosures) (Hemas Holdings PLC, 2024a).

This adoption of international sustainability reporting standards reflects a broader global trend towards integrated reporting, where financial and non-financial disclosures are presented together to provide a holistic picture of organisational performance and value creation. For Hemas Holdings, whose FY 2024/25 Annual Report was prepared in accordance with GRI Standards and aligned with the United Nations Sustainable Development Goals (UN SDGs) and the Ten Principles of the UN Global Compact, this represents a significant expansion of the traditional accounting function's scope (Hemas Holdings PLC, 2025).

Hemas also adopted the Code of Best Practice on Corporate Governance issued by CA Sri Lanka in its 2024/25 Annual Report (Hemas Holdings PLC, 2025). This code establishes best practices for board composition, audit committee functioning, risk management oversight, and internal controls — all areas where the accounting function plays a central role. Compliance with this code is voluntary but strongly encouraged, and for a company of Hemas's profile, demonstrated adherence serves as a powerful signal of governance quality to sophisticated investors and international partners.

3. Professional Ethics in Accounting: The ICASL Code of Ethics

Professional ethics form the moral foundation upon which the accounting function operates. The Code of Ethics for Professional Accountants issued by ICASL is based on the International Federation of Accountants (IFAC) Code of Ethics and establishes five fundamental principles that all professional accountants in Sri Lanka must uphold: integrity, objectivity, professional competence and due care, confidentiality, and professional behaviour (ICASL, 2024; CA Sri Lanka, 2024).

Integrity requires that accountants be honest and straightforward in all professional and business relationships. This principle is operationalised at Hemas Holdings through a commitment to transparent financial disclosure — the company's integrated Annual Reports provide candid assessments of both successes and challenges, including the impact of Sri Lanka's economic crisis on consumer purchasing power and its effect on the Healthcare segment's revenues (Hemas Holdings PLC, 2024a). Such transparency, even when it involves disclosing unfavourable information, is the hallmark of an accounting function grounded in professional integrity.

Objectivity demands that accountants avoid bias, conflicts of interest, and undue influence from third parties. This principle is institutionally reinforced at Hemas through its Audit Committee, which is composed of independent non-executive directors responsible for overseeing the integrity of the company's financial reporting process and its relationship with the external auditor (Hemas Holdings PLC, 2024a). The appointment of independent audit oversight structures reflects the company's recognition that objectivity in financial reporting cannot be assumed — it must be systematically designed into governance structures.

Professional competence and due care require accountants to maintain their professional knowledge and skills at a level that ensures clients and employers receive competent professional service. For Hemas Holdings, this translates into the ongoing professional development of its finance team, ensuring they remain current with evolving standards such as the newly adopted SLFRS S1 and S2 sustainability reporting standards announced in the FY 2024/25 Annual Report (Hemas Holdings PLC, 2025). The adoption of these cutting-edge standards demonstrates a commitment to professional competence that goes beyond mere compliance to genuine excellence.

4. Ethics, Regulation and Compliance: Constraints or Enablers?

A central question in considering the regulatory and ethical framework of accounting is whether these requirements represent constraints that limit organisational freedom, or enablers that build the trust and confidence that underpin market participation. The weight of evidence — both theoretical and empirical — strongly favours the latter interpretation.

Medium (2024) argues that ethical considerations, regulations, and compliance serve as "protectors of public interest" that "safeguard stakeholders' interests and uphold market confidence." This perspective aligns with a broader institutional economics argument: regulated financial reporting creates the informational commons that makes capital markets function efficiently. When investors and creditors can trust that financial statements are prepared honestly and in accordance with recognised standards, they are willing to provide capital on more favourable terms (Weetman, 2019). Companies that demonstrate regulatory compliance and ethical accounting practices therefore enjoy a genuine competitive advantage in accessing finance.

For Hemas Holdings PLC, this argument is borne out concretely. Following Sri Lanka's sovereign debt restructuring in December 2024, which resulted in Fitch Ratings upgrading the country's credit rating from Restricted Default to CCC+ and a similar upgrade from Moody's, Hemas was well-positioned to benefit from the return of foreign investor confidence (Hemas Holdings PLC, 2025b). This recovery of investor confidence was predicated not only on macroeconomic improvements but also on the quality and credibility of financial reporting by leading Sri Lankan companies. Hemas's demonstrated commitment to high-quality accounting and governance practices was a key factor in its continued attractiveness to investors throughout the crisis period.

Conversely, non-compliance with accounting regulations can have devastating consequences. The SLAASMB's enforcement actions against companies that have failed to apply required accounting standards serve as cautionary examples of the risks of neglecting regulatory compliance (SLAASMB, 2024). Reputational damage, loss of investor confidence, regulatory sanctions, and potential delisting from stock exchanges are among the severe consequences that can follow from accounting failures. For Hemas, the incentive to maintain rigorous regulatory compliance is therefore both principled and pragmatic.

5. Environmental and Social Compliance: The Expanding Frontier of Accounting Ethics

The scope of ethical obligations in accounting is expanding beyond traditional financial reporting to encompass environmental and social accountability. Hemas Holdings' commitment to ESG principles reflects this trend. The company's ESG and Sustainability framework, embedded within its Corporate Governance Framework and Enterprise Risk Management system, ensures that environmental and social impacts are identified, measured, and reported alongside financial performance (Hemas Holdings PLC, 2024b).

Hemas's Environmental Agenda 2030 sets targeted strategies for addressing material environmental topics such as climate change, water use, waste minimisation, energy efficiency, and biodiversity protection — all governed by defined goals, timelines, and action plans (Hemas Holdings PLC, 2025). The group has made notable progress in plastic waste management, collecting over 1.2 million kilogrammes of plastic waste as part of its commitment to collect back 100% of its plastic sent to market (Hemas Holdings PLC, 2025b). These environmental initiatives generate non-financial data that must be rigorously measured and reported — a task that increasingly falls within the accounting function's expanding remit.

The accounting function's role in environmental compliance is further reinforced by the adoption of SLFRS S1 and S2, which require companies to disclose sustainability-related financial information and climate-related risks and opportunities as part of their financial reporting (Hemas Holdings PLC, 2025). This regulatory development fundamentally expands the traditional boundaries of accounting, requiring accountants to develop new competencies in measuring and reporting non-financial performance data. For Hemas Holdings, this represents both a challenge and an opportunity: the challenge of building new accounting capabilities, and the opportunity to differentiate itself as a leader in integrated reporting among Sri Lankan companies.

Conclusion

The regulatory and ethical framework governing accounting at Hemas Holdings PLC is both extensive and evolving. From domestic legislation under the Companies Act No. 7 of 2007 and SLAASMB oversight to international standards such as SLFRS, GRI, and IFRS S1/S2, and from ICASL's Code of Ethics to the Code of Best Practice on Corporate Governance, the accounting function at Hemas operates within a rich and demanding normative environment. Rather than viewing these requirements as constraints, this analysis suggests that they function primarily as enablers — providing the framework of trust, transparency, and accountability that allows Hemas to attract capital, build stakeholder confidence, and operate with legitimacy in complex domestic and international markets. As the accounting profession continues to evolve in response to new sustainability demands, companies like Hemas Holdings that embrace this broader ethical mandate will be best positioned for long-term success.

References

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Hemas Holdings PLC (2024a) Annual Report 2023/24. Colombo: Hemas Holdings PLC.

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Hemas Holdings PLC (2025) Annual Report 2024/25. Colombo: Hemas Holdings PLC.

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