Why Do You Need an Approved Accountant for Business or Investment Accounts?

The Inland Revenue Act, No. 24 of 2017 makes it mandatory in certain situations for a person engaged in business or investment activity to have their accounts prepared and certified by an approved accountant.

Section 120(2) of the Act provides:

“The circumstances under which a person engaged in business or investment activity shall have accounts prepared by an approved accountant and the form by which an approved accountant shall attest to the accuracy and completeness of the accounts prepared shall be prescribed by regulations.”

The Act further defines an “approved accountant” as:

“approved accountant” means –
(a) an accountant who is a member of the Institute of Chartered Accountants of Sri Lanka; or
(b) an accountant who is a fellow member of the Association of Accounting Technicians of Sri Lanka incorporated under the Companies Act, No. 7 of 2007 in relation to any person, or any partnership other than a company where the turnover of the business of the person or partnership for the year does not exceed one hundred million rupees.

The Logic Behind This Rule

When you earn business income or investment income, you are usually allowed to deduct expenses before calculating taxable income.

• A business deducts costs such as salaries, rent, transport, utilities, etc.

• An investor may deduct expenses like repairs on rental property, bank charges, or interest on loans used for investment.

Since these deductions reduce your taxable income, the IRD requires that an independent professional checks and certifies the accuracy and completeness of the accounts. This ensures:

1. Expenses are genuine (not personal expenses claimed as business/investment expenses).

2. Income is properly reported.

3. Fairness and consistency in tax reporting.

In other words, the accountant acts as a trusted intermediary between the taxpayer and the IRD.

Who Can Certify?

• Companies (any size) → Must use a Chartered Accountant.

• Individuals / Partnerships

  • If turnover (business) or gross income (investment) is under Rs. 100 million → Can use a Chartered Accountant or a Fellow AAT member.

  • If above Rs. 100 million → Must use a Chartered Accountant.

Examples

Example 1 – Business Income

Ramesh owns a grocery shop with annual turnover of Rs. 50 million.
He deducts expenses like staff salaries, electricity, and vehicle running costs.Since he is a sole proprietor and turnover is under Rs. 100 million, his accounts can be certified by either a Chartered Accountant or a Fellow AAT member.

Example 2 – Investment Income (Rental Property)

Nimal earns Rs. 80 million from renting out apartments.
He deducts expenses such as building repairs, loan interest, and maintenance costs. Since this is investment income under Rs. 100 million, his accounts can be attested by either a Chartered Accountant or a Fellow AAT member.

Example 3 – Investment Income (Shares)

Priya earns Rs. 150 million from stock trading and deducts brokerage fees and loan interest. Because income exceeds Rs. 100 million, only a Chartered Accountant can certify her accounts.

Example 4 – Private Company

ABC (Pvt) Ltd has turnover of Rs. 40 million.
Even though turnover is low, because it is a company claiming deductions, only a Chartered Accountant can attest.

Key Takeaway

The rule under Section 120(2) ensures credibility in tax reporting:

• Business or investment income → Once you claim deductions, your accounts must be attested.

• Companies (any size) → Chartered Accountant only.

• Individuals/Partnerships under Rs. 100 million → Chartered Accountant or Fellow AAT.

• Above Rs. 100 million → Chartered Accountant only.

This way, the Inland Revenue Department can rely on accounts that are certified by a professional, reducing disputes and safeguarding the tax system.