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    An Examination of Performance Audit Principles in Public Sector Audit: An Interpretive Study in Bangladesh
    (Department of Accountancy, University of Kelaniya, Sri Lanka., 2024) Rajib, S. U.; Hoque, M.
    This paper aims to assess the principles of performance auditing (PA) in the public sector of Bangladesh. The PA is conducted by the supreme audit institution of the country, the Comptroller and Auditor General (OCAG). To attain the objective this study analyses all the performance auditing (PA) reports published by the OCAG. There are 19 published PA reports. The PA report has been classified into several principles, including the 3Es as suggested by the International Organization of Supreme Audit Institutions (INTOSAI). The level of compliance has been integrated into the classification scheme of the PA reports. The contents analysis demonstrates that Effectiveness has been addressed in the highest number of reports whereas Efficiency has not been addressed in any reports. The extended classifications (beyond 3Es) have been reflected in the PA reports rarely. In addition, compliance issues have been presented weakly in the reports. The findings have been analyzed in line with the contemporary studies in public sector auditing. Public sector auditing has been studied merely in developing countries. This study will contribute to this aspect. Moreover, the future potential research avenue has been explored in this study. The limitation of this study is confined in the number of reports which is 19. Therefore, these limited available data and the uniqueness of the developing country defy the generalization of the findings but can contribute to the PA research in developing countries.
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    The Impact of Macroeconomic Stability on Commercial Bank Profitability: A Study of Sri Lanka
    (Department of Accountancy, University of Kelaniya, Sri Lanka., 2024) Rathnasiri, R. A.
    In today’s highly globalized and complex financial environment, it is crucial to examine the relationship between macroeconomic factors and the profitability of commercial banks. This paper investigates the impact of macroeconomic stability on the performance of commercial banks in Sri Lanka, arguing that such stability is particularly vital for the banking sector in this small economy. While the existing literature extensively explores both internal and external determinants of bank profitability, it predominantly focuses on developed nations. This study incorporates variables representing internal stability—economic growth, inflation rate, and interest rate—alongside the exchange rate as an external stability factor, all in relation to the profitability of commercial banks in Sri Lanka. The research framework is enriched by including non-performing loans as a mediating variable and bank size as a control variable, with return on equity used as a proxy for measuring profitability. Adopting a deductive approach, the study utilizes data from the annual reports of commercial banks and central bank publications for the period from 2010 to 2021, focusing on six systemically important banks based on asset holdings. The macro time series data is analyzed using a fixed random effects model. The results reveal that GDP growth, inflation rate, money supply, and bank size significantly positively impact bank profitability, while the exchange rate and non-performing loans exert a negative influence. This study concludes that enhancing bank profitability requires maintaining macroeconomic stability and outlines the policy challenges the Sri Lankan government must address to achieve such stability, ensuring the sustainability of the financial system.
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    Interrelationships Between Non-Financial Perspectives of Balanced Scorecard: Evidence from Sri Lankan Public Listed Companies
    (Department of Accountancy, University of Kelaniya, Sri Lanka., 2024) Perera, P.R.M.R.; Kariyawasam, A.H.N.
    The objective of this study is to examine the interrelationship among the non-financial perspectives of the Balanced Scorecard. Out of 285 PLCs listed, 102 PLCs in the Colombo Stock Exchange; Sri Lanka have responded in this study and data collected with a standard questionnaire. Respondents were from the managerial capacity of the companies. The questionnaire captures all aspects that construct each non-financial perspective of the Balanced Scorecard using 5-point Likert scale. Two factors under each non-financial perspective, totaling to six factors were found through a factor analysis and the factors were used in finding the interrelationship between non-financial perspectives. Results reveal that the learning and growth perspective has a relationship with the internal business process perspective where both internal oriented learning and external oriented learning are highly correlated with collaborative process efficiency. The relationship between internal business process perspective and customer perspective is evidenced by the strong correlation that customer satisfaction has with both product delivery process efficiency and collaborative process efficiency. Learning and growth perspective reveals a relationship with the customer perspective having internal oriented learning strongly correlated with customer satisfaction. This study contributes to the body of knowledge by confirming the underlying assumption in the Balanced Scorecard and notifying firms that have or haven’t adopted the Balanced Scorecard approach with a general conclusion to focus on the non-financial perspectives by understanding the interrelationship between them.
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    Integrated Reporting Assurance: Perceptions of Auditors in Sri Lanka
    (Department of Accountancy, University of Kelaniya, Sri Lanka., 2024) Sewwandi, W. D.; Herath, H. M. M. N.; Wijekoon, W. M. H. N.
    The purpose of this paper is to identify the perceptions and differences in the perceptions between the auditors on the assurance service of integrated reporting in Sri Lankan context. This research mainly focuses on the importance of assuring the IR, form and content of an audit report on IR, challenges of assuring IR and future of the IR assurance. The population of the research consists of auditors who provide assurance services on Integrated Reporting in Sri Lanka. Two hundred questionnaires were sent to assurance experts through the emails generating 115 usable responses. The analysis is done using non-parametric statistics which is the Kruskal-Wallis test. Empirical results prove that it is necessary to have an external assurance on an entity’s integrated report and it is important to audit the complete content of integrated reporting. When comparing the auditors' perceptions based on their respective rankings, the results indicate that there is a noticeable difference in how auditors view the necessity of Integrated Reporting (IR) assurance and their opinions on the appropriate level of assurance. Limiting the study to a single jurisdiction is an inherent limitation. In this paper differences and similarities are evaluated based on only the rank of the assurance providers. The findings of this research could be valuable for the International Integrated Reporting Council, the International Auditing and Assurance Standards Board, and other regulatory agencies and useful for academics and practitioners interested in providing assurance on IR.
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    The Mediating Effect of Profitability on The Relationship Between Working Capital Management and Shareholder Wealth: Evidence from Colombo Stock Exchange
    (Department of Accountancy, University of Kelaniya, Sri Lanka., 2024) Abeysinghe, A. M. N. D.; Wanigasekara, W. A. D. K. J.
    The management of working capital plays a crucial role in enterprises and has a substantial influence on the wealth of shareholders. Working capital management, profitability, and shareholder wealth have emerged as significant subjects of discussion in contemporary discourse, since they have been acknowledged as expansive areas of study. The primary aim of this research was to investigate the mediating role of profitability in the association between working capital management and shareholder wealth, focusing specifically on empirical data from the Colombo Stock Exchange. The working capital management was measured using Current Ratio, profitability was quantified by Return on Investment and shareholders’ wealth was measured through Tobin’s Q. Data for the research was collected by examining the annual reports of 100 non-financial firms listed on the Colombo Stock Exchange. Upon conclusion of the study, it yielded findings that addressed the research inquiries, so signifying the successful attainment of the research aims. This paper examines profitability, working capital management, and shareholder wealth in Sri Lankan businesses. A weak, but significant association between working capital management and all factors was found based on the correlation analysis. It was found a significant impact of working capital management on shareholders' wealth. Further, the findings revealed a significant impact of working capital management on profitability and a significant impact of profitability on shareholders’ wealth. Finally, it was evidenced that profitability plays a partial mediation role on the relationship between working capital management and shareholders’ wealth.
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    Effects of Non-Performing Loans & COVID-19 Pandemic on the Performance of Commercial Banks in Sri Lanka
    (Department of Accountancy, University of Kelaniya, Sri Lanka., 2023) Silva, M. T. M.; Perera, W. T. N. M.; Madhushani, H. G. I.
    The COVID-19 pandemic has significantly impacted the global economy, and the non-performing loans (NPLs) have become a pressing issue for commercial banks in Sri Lanka. It is doubtful how the NPLs and COVID-19 Pandemic have affected the performance of commercial banks in Sri Lanka. Thus, the purpose of this study is to investigate effects of non-performing loans & COVID-19 pandemic on the performance of Sri Lankan commercial banks for the period of 2011 - 2021. The panel data regression analysis was used to investigate the effects of non-performing loans & COVID-19 pandemic on the financial performance of Commercial Banks. The results of the analysis revealed that non-performing loans and the pandemic period have a negative impact on the profitability of commercial banks in Sri Lanka. Thus, this study is useful for bank management officials to protect banks from crises and create ideas to enhance the performance of banks.
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    Enterprise Risk Management Practices and Financial Performance of Apparel Industry in Sri Lanka
    (Department of Accountancy, University of Kelaniya, Sri Lanka., 2023) Athuraliyage, N. M.; Liyanage, C. J.
    The apparel industry plays an important role in the Sri Lankan economy. However, based on the previous literature, apparel factories continuously face many internal and external risks and business recessions that affect their performance. Therefore, the main objective of this study is to identify the impact between enterprises' risk management practices and firm’s financial performance. To achieve the said objective, researchers carried out a questionnaire-based survey of 167 managers who were involved in enterprise risk management in the apparel industry in Sri Lanka, applying a simple random sampling method. This study is quantitative research that adopts ontological and positivist research philosophy. The Statistical analysis has been done through correlation coefficient analysis with the SPSS software. Results found that small apparel factories' risk management systems turned out to be relatively weak and informal. Further, firm size and management attitude toward risk have been shown to significantly impact enterprises’ risk management practices and company financial performance. The findings confirmed a strong positive correlation between risk management practices and financial performance in the Sri Lankan apparel sector.
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    The Impact of Corporate Governance on Financial Distress: Evidence from Listed Financial Institutions in Sri Lanka
    (Department of Accountancy, University of Kelaniya, Sri Lanka., 2023) Perera, T. M. A. Y. M.; Munasinghe, M. A. T. K.
    This study focuses on the role of corporate governance in predicting financial distress of companies in the finance sector in Sri Lanka. Over the past two decades, several finance sector companies collapsed in Sri Lanka affecting numerous victims with no proper compensation payments. The study aims to unveil the impact of corporate governance on financial distress of companies in the financial sector. A number of key variables included to measure the corporate governance such as board size, board gender diversification, frequency of board meetings, audit quality, board member remuneration, CEO duality, education level of the board members, and board independence. As control variables firm size, profitability, and financial leverage are considered. Financial distress is operationalized through the measures of institutions negative profit, cash flow, or worth for three consecutive years. Data from 54 listed financial institutions in Sri Lanka were collected from 2017 to 2022. Descriptive analysis, Pearson correlation analysis, corporate governance comparison model, and regression analysis were employed for data analysis. The findings indicate that board size, board gender diversification, frequency of board meetings, higher audit quality, education level of the board, board independence, and return on equity have a significant negative impact on financial distress. These findings can help identify at-risk financial institutions, support decision-making for investors and stakeholders, guide the implementation of corporate governance policies, and inform policymakers in developing new governance policies.
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    The Impact of Audit Quality on Earnings Management: Evidence from Listed Companies in Sri Lanka
    (Department of Accountancy, University of Kelaniya, Sri Lanka., 2023) Madhushani, H. G. I.; Sujeewa, G. M. M.
    Earnings Management (EM) is related to the manipulation of reported income through accounting practices and decisions. With the occurrence of numerous financial collapses and failures, the reliability of the audit function has been challenged, as auditors play a critical role in expressing an opinion on the financial statements. This study investigates the impact of Audit Quality on EM in Sri Lankan listed companies. This study employs Modified Jones model to examine earnings management practices through Discretionary Accruals (DA). The selected proxies of audit quality which are Length of Audit Tenure, Audit Firm Size and Auditor Independence are the independent variables. The data is collected from annual reports for the financial periods 2015 - 2020 and audit reports for the financial period 2012 - 2020 of listed companies on the Colombo Stock Exchange (CSE). This study employed descriptive statistics, correlation analysis, and multivariate analysis to analyze the data. Based on the quantitative analysis, the results demonstrated that the association between audit firm size and earnings management in Sri Lankan listed companies is negative and significant. It was found that the level of EM between companies using Big 4 auditors and those using non-Big 4 auditors is much lower. This study revealed that auditor independence and EM have a significant negative association. It was suggested that independent auditors have a greater ability to regulate and identify EM activities through company management. Further, this study exposed that there is an insignificant association between the length of audit tenure and earnings management. These findings are useful to shareholders in appointing or reappointing auditors. Furthermore, this study enables stakeholders, including regulatory bodies, to examine the presence of EM practices in listed companies of CSE.
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    Financial Management Practices and Small and Medium-scale Enterprises' Performance in Sri Lanka
    (Department of Accountancy, University of Kelaniya, Sri Lanka., 2023) Sandaruwandi, S. V. C.; Panditharathna, K. M.; Rathnayake, S. S.
    Small and Medium-scale Enterprises (SMEs) add value to an economy by creating employment, contributing to Gross Domestic Production (GDP), making innovations, and minimising poverty. They are partnering with the development of the country. Most small and medium-scale enterprises face issues like lack of knowledge, outdated skills, fear of taxation, adoption of accounting standards, and accounting information records. Therefore, this study aims to identify the relationship between financial management practices and SMEs' performance in the southern province of Sri Lanka. This study measures financial management practices using financial reporting analysis, working capital management, fixed asset management, and accounting information systems. SME performance was measured by the profitability of SMEs using return on assets. Considering data constraints, time constraints, and the COVID-19 situation, 107 Small and Medium Enterprises operating in the manufacturing and service sectors were selected as samples. A questionnaire was chosen as the primary data-gathering method. The sample was chosen using a convenience sampling procedure, and the data were analysed using the Statistical Package for Social Scientists (SPSS) software. Multiple regression analysis was done to examine the hypothetical association. This study found that financial management techniques such as fixed asset management, working capital management, accounting information systems, and financial performance of SMEs have a significant association with performance. The findings support aiding investors, workers, and policymakers in making effective decisions.