International Journal of Accountancy

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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.
Corporate Governance and Corporate Transparency: A Sri Lankan Case
(Department of Accountancy, University of Kelaniya, Sri Lanka., 2022) Ratnayake, D. A. W. M. S. P.; Rajakulanajagam, N.
The main purpose of the research is to explore the impact of corporate governance on the corporate transparency of public listed companies in Sri Lanka. The content analysis was applied to measure the dependent variable, corporate transparency while independent directors, board size, female directors, dual leadership, cross directorship, audit firm size, related party transaction review committee and remuneration committee were used as the variables of corporate governance. This research study covers 100 public listed companies which have been listed on Colombo Stock Exchange in Sri Lanka representing eight sectors and secondary data were gathered from annual reports published on Colombo Stock Exchange for the period from 2018 to 2020. The data analysis was performed through correlation and regression analysis using EViews software. As per the results of regression analysis, it was shown that there is a significant impact of audit firm size and female directorship on corporate transparency. Distinct from the previous empirical research, corporate transparency was measured using a newly updated transparency and disclosure index based on the most recent corporate governance codes in 2017. The outcome of the study gives an insight into corporate governance and corporate transparency to regulators, policymakers, practitioners, researchers and investors by adding value to the existing literature.
CSR Disclosure and Financial Performance in Listed Manufacturing Companies in Sri Lanka
(Department of Accountancy, University of Kelaniya, Sri Lanka., 2022) Dilrukshi, R. M. D. N.
The study was conducted to identify the Corporate Social Responsibility disclosure and financial performance in manufacturing sector in Sri Lanka. CSR disclosure is indicated as independent variable and it was measured by using CSR index. Financial performance identified as dependent variable which measured by using the Return on Equity (ROE) and Return on Assets (ROA). Data was obtained from annual reports websites publications and secondary data was collected from the year 2014 to 2019. The data was analysed using E-views and Pearson correlation. The study applied linear regression model to assess the impact of CSR disclosure and financial performance. Target population comprised of 38 listed companies of which, 30 companies were selected as sample. This data was collected for 5 years each firm giving 150 observations. In this study show that CSR disclosure and financial performance has a positive correlation at 5% significant level. The study concluded further that significant relationship existed between CSR disclosure and ROE. The study recommended that manufacturing firms should have much attention to the importance of CSR and need to pay more attention to increase financial performance.
Determinants of Banks’ Profitability: Empirical Evidence from Sri Lanka
(Department of Accountancy, University of Kelaniya, Sri Lanka., 2024) Ruwanthika, W. M. T.; Wijekoon, W. M. H. N.; Gunathilaka, R. C.
The objective of this paper is to examine the effect of bank specific, industry specific and macro-economic determinants namely, bank size, capital adequacy, credit risk, liquidity risk, operating cost efficiency, assets management, diversification, market concentration, inflation and interest rate on Sri Lankan commercial banks’ profitability over the period from 2010 to 2019. The study used quantitative research approach and analyzed secondary data using E views software of 11 Sri Lankan commercial banks over a period of 2010 to 2019. Multiple panel regression method was used to investigate the effects of bank specific, industry specific and macro-economic determinants on the profitability of commercial banks in Sri Lanka. The result of the study suggests that bank size, capital adequacy, asset management and interest rates bring positive effects on the banks’ profitability, while credit risks bring negative effects on commercial banks’ profitability. This study is one of the pioneering studies examining the determinants of the profitability of commercial banks in emerging economies. The implications of this study would be helpful for policy makers and regulatory bodies in revising their existing practices for developments in the banking sector in achieving the economic growth. Further, this study sheds light on Sri Lankan commercial banks to understand the significant determinants on their overall profitability and set strategies to accordingly.
Differential Patterns of Textual Characteristics in the Chairman’s Statement and Company Performance: Evidence from Sri Lanka
(Department of Accountancy, University of Kelaniya, Sri Lanka., 2022) Rosa, S. J. S.; Kawshalya, M. D. P.
Corporate annual reports are continuously getting important in external reporting. The chairman’s statement is one of leading section of annual report that provides information beyond what is required by the regulatory frameworks. It is well-known fact that, those who prepare financial statements have motivation to exercise the content of Chairman’s Statements. In Sri Lanka, since Chairman’s Statement being a prominent requirement of annual report, this research investigates the textual differences of chairman’s statement in companies with higher performance and poor performance in terms of market capitalization. The research question is investigated by examining a range of textual characteristics in the chairman’s statements of 25 companies with highest market capitalization and 25 companies with lowest market capitalization listed in the Colombo Stock Exchange (CSE). The results of the current study indicate that content of chairman’s statement significantly affected by firm’s underlying performance. Since, Chairman’s statement is one of the most widely read section of the annual reports, the findings of this study will provide guidelines and enhance the understandability of the stakeholders who make informed judgments and decisions regarding organizations by reading the chairman’s statement.
Digitalization of Environmental Tax: the right Tax Policy Reform for Nigeria
(Department of Accountancy, University of Kelaniya, Sri Lanka., 2021) Garba, I.; Bappayaya, B.; Gambo, I.; Oluwakayode, A. M.; Ayodele, A. J.
The paper examined different tax policy options that are currently under consideration in the Nigerian economy in supporting tax policy and its administration reforms. Online tax systems are rapidly replacing cumbersome manual-based tax reporting systems which help the ease of doing business in Nigeria by reducing human intervention in the payment and collection of tax and by extension, checks the possibility of connivance of tax officials with fraudulent taxpayers to evade tax. A quantitative method was used in generating data for the studies of which tax consultants and policymakers were randomly selected in the north-east part of the country, and free rider theory was adopted for the research work. It has been recommended that digitalizing environmental taxes is the most efficient tax policy of pursuing many environmental policy goals. There is also the need for consistency and transparency in the policies. Due to the imposition of any environmental tax requires countries to be fair, transparent and keep environmental objectives as priorities.
Does Board Structure in Commercial Banks Impact their Performance?
(Department of Accountancy, University of Kelaniya, Sri Lanka., 2021) Jayathilaka, P. G. A. T.; Kumari, J. S.
This study aims to determine the Impact of Board Structure on the Performance of listed Commercial Banks on the Colombo Stock Exchange. This study examines the relationship between Board Structure and Corporate Financial Performance of listed commercial banks using a sample of 12 banks listed on the Colombo Stock Exchange, based on data from 2015 to 2019. Descriptive, correlation and regression analyses were performed to achieve the study objectives. This study uses the company's performance based on the following financial performance measures: return on assets (ROA) and return on equity (ROE) and board structure consisting of board size, female board members, non-executive directors, and frequency of board meetings. Bank capital is used as the control variable in this study. The study's findings suggest that the frequency of board meetings and non-executive directors have a negative and substantial influence on ROE, while the frequency of board meetings has a significant and negative impact on ROA. Additionally, bank capital has a positive and significant impact on ROA. However, the board size, female board members, and bank capital have no significant impact on ROE while board size, non-executive directors, and female board members have no significant impact on ROA of CSE-listed commercial banks. This study contributes to the literature on corporate governance and firm performance by providing the framework that affects the relationship between board structure and firm performance in the context of listed commercial banks. The findings of the study are important for policymakers, investors, regulators, and other bankers of the country. Commercial banks listed in Colombo Stock Exchange would put more attention on the structure and quality of the board to improve their performance. Concerning the study's scope, the present study only included CSE-listed commercial banks. Thus, additional research is needed to study the entire Sri Lankan banking system and 20 business sectors. Further, this study only looked at accounting-based measures such as ROA and ROE. Tobin's Q, for example, can be employed as a dependent variable. Future studies should be done by including cross-border analysis of developing and developed countries.
Does Ethical Banking Hold the Potential to be the Future of Banking?
(Department of Accountancy, University of Kelaniya, Sri Lanka., 2022) Jayasekera, M. A. K. D. S.; Pushpakumari, M. D.
Banks are expected to play a major role in socio -economic and environmental progress of a country; yet, they have by and large neglected their societal and environmental responsibilities, thereby contributing mainly towards economic gains. As such, banks were blamed by civil society for not doing enough for the environment etc. They were also found wanting in providing services to lesser-privileged sections of society, thus unfairly excluding the category from the benefits of basic financial services. The economic downturn exacerbated their plight and exposed the banking sector’s irresponsible attitude. Naturally, there has been a public outcry for banks to act more responsibly in the future. The mood of the public seemed to reflect the yearning for an alternate banking model, in order to discharge social, environmental and economic responsibilities effectively. As a result, an Ethical Banking came to be accepted as an alternative, as this model encompasses all three elements -economy, environment and society. Ethical Banking strives to achieve the triple bottom line - planet, people and profit. These banks envisage financial inclusion and also deliver eco- friendly banking solutions to customers. The main objective of this study is to determine whether ethical banking has the potential to be the future of banking. The significance of the study is also to find out how ethical banking may be adapted as the most suitable banking concept of the future. This study is a desk research, in the form of a literature review. The review identifies that Ethical Banking holds the potential to be the future of banking. The outcome of this research, highlights the importance of banking to be ethically oriented, in order to maintain sustainability for the future.
Dynamics of Price and Volatility Spillovers among Stock Markets and Foreign Exchange Markets: Evidence from South Asia
(Department of Accountancy, University of Kelaniya, Sri Lanka., 2023) Samarakoon, S. M. R. K.; Rajapakse, R. P. C. R.
This study examines the volatility spillover interplay between the foreign exchange and equity markets in three key South Asian countries: India, Pakistan, and Sri Lanka. Drawing on time-series data from 2001 to 2023 and utilizing the DCC-GARCH model, distinct market dynamics emerge. India stands out with pronounced short-term and long-term bidirectional spillovers, revealing an integrated financial landscape. Conversely, Pakistan demonstrates heightened sensitivity to short-term market shocks with muted long-term correlations. Sri Lanka's financial landscape reveals an absence of short-term spillovers while manifesting pronounced long-term interdependencies. This study underscores South Asia's financial heterogeneity, offering pivotal insights for regional economic strategies, investment paradigms, and future academic studies.
Effect of Internal Audit on Fraud Management in the Financial Service Sector in Sri Lanka
(Department of Accountancy, University of Kelaniya, Sri Lanka., 2022) Sepala, P. H. N. H.; Herath, H. M. M. N.; Munasinghe, M. A. T. K.
This study aims to study the relationship between internal audits and fraud management. Accordingly, this study, examines the internal audit organizational status, internal audit capabilities, and the contribution of internal audit activities to the fraud management of financial services companies in the Sri Lankan context. The target population for this study was defined as the 80 currently traded financial service sectors firms in Sri Lanka and data collected from systemically important banks namely, Bank of Ceylon, Commercial Bank of Ceylon, Hatton National Bank, People's Bank, Sampath Bank, Seylan Bank and they hold 78 percent of the banking assets and get total of 235 responses were collected from a questionnaire survey. In terms of findings, the results show that internal audit competence, is important predictors of fraud management. Also highlighted is that each financial service sector's concern about internal audit and forensic accounting is a value-added function of an organization and gives more attention to that area in the modern era. Researchers hope that their findings will add to the existing body of work and help close a knowledge gap in regards to emerging countries. The results are important for internal audit managers, internal audit policymakers to empower internal audit function in their organization.
Effect of Socio-demographic Factors (Age, Occupation and Education) on Behavioral Biases of Individual Investors’ Decision-making Evidence from The Colombo Stock Exchange
(Department of Accountancy, University of Kelaniya, Sri Lanka., 2021) Gunathilaka, R. C.
The purpose of this paper is to investigate the effect of age, occupation and education on the relationship between behavioral biases and financial decision-making of individual investors based on The Colombo Stock Exchange (CSE). This study considers overconfidence bias, representativeness bias, disposition effect and herd-mentality bias on the financial investment decision-making of individual investors, taking steps to fill the empirical gap and practice gap in Behavioral Finance context. A questionnaire was utilized to collect data and the sample consisted of 114 individual respondents. Finally, data of 100 investors was analyzed by using Partial Least Square-Structural Equation Modeling approach. The study revealed that age moderates the relationship between disposition effect and investment decisions of individual investors. Further, occupation also moderates the relationship between herd-mentality bias and individual investors’ investment decisions. This study is one of the pioneering studies examining the effect of socio-demographic factors of age, occupation and education on the relationship between behavioral biases and individual investors’ decision-making, Further, this study sheds light on the rare prior studies that relate socio-demographic factors to behavioral biases of individual investors’ decision-making, particularly in emerging markets context while expanding the extant literature in Behavioral Finance.
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.
Employees' Perceptions on Corporate Governance: Empirical Evidence from Sri Lanka
(Department of Accountancy, University of Kelaniya, Sri Lanka., 2021) Fernando, A. T.; Dissanayake, D. H. S. W.; Deshika, N. P. T.
In this study, the primary objective is to investigate employees' perceptions toward the corporate governance practices of Sri Lankan publicly traded companies. The objectives are based on the research problem and emerge through various aspects of corporate governance; components, performance implications, significant issues related to Directors, major issues affected for the company's well-being, and the current status in Sri Lankan Corporate Governance. The quantitative research approach is adopted, and primary data is gathered using a questionnaire survey with a sample of 100 respondents. The questionnaire is addressed to employees in the companies listed in the Colombo Stock Exchange, where the sample was constructed out of the top 50 companies of the highest market capitalization. The analysis is done through a validity using factor analysis and reliability test followed by an analysis of variance (ANOVA) test and chi-square analysis. The results show that employees' perceptions of corporate governance factors differ concerning the changes in the demographical factors. The results generated through this study can be beneficial for employees, managers, practitioners, and students in developing a better understanding of employee perceptions and the concept of corporate governance. Furthermore, this research constructs a scale for measuring employee perceptions of corporate governance, which has significant theoretical and practical implications.
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.
Exploring the Rationale for Assuring Integrated Reports and its Impacts on Assurance Practices: A Proposed Conceptual Model
(Department of Accountancy, University of Kelaniya, Sri Lanka., 2021) Herath, R.; Senaratne, S.; Gunarathne, N.
here is a growing demand for external assurance on integrated reporting despite the challenges involved in the assurance process. However, the rationale for obtaining external assurance on integrated reports is mostly unknown, and how it leads to organisational changes is not sufficiently explored. Thus, this study offers a conceptual model to explore the rationale behind obtaining external assurance on integrated reporting, its impacts on internal assurance practices, justifications for modifications made to the internal assurance practices, and its implications on external assurance practices. This conceptual model, grounded on the framing and institutional theories, postulates that companies tend to assure their integrated reports externally as a response to various isomorphic pressures. The external assurance of an integrated report may warrant modifications to companies' current internal assurance practices. Companies make these modifications based on different rationales, which can also have implications on external assurance practices. This paper also discusses how researchers and practitioners can use this model.
Factors Affecting Share Prices of Finance Companies in Sri Lanka
(Department of Accountancy, University of Kelaniya, Sri Lanka., 2023) Pandigamage, N. G.; Ranaweera, D. C. P.
The price of a share is influenced by a variety of internal and external factors. Internal factors are those dependent on the company, such as return on equity, and earnings per share. The external influences include raw material pricing, economic trends, inflation, investor confidence, interest rate, exchange rate, and other factors that are beyond the firm's control. Both kind of factors may influence the investor’s future expectations and risk-taking ability, and as a result that they take their investment decisions. This study aimed to examine the factors affecting share prices in finance companies in Sri Lanka for the period of five years, from 2017 to 2022. For that purpose, researchers selected the independent variable as the share price, while the dependent variables are earnings per share (EPS), return on equity (ROE), interest rate, inflation, and exchange rate. The researchers collected data from the CSE data library, Company annual reports, and Central Bank Reports. The STATA was used to analyze the data in this study. Descriptive Statistics, Correlation Analysis, Regression Analysis were performed as analytical tools. The findings highlighted that EPS and inflation positively impact raw material pricing, while ROE, interest rate, and exchange rate showed a negative impact. But only EPS shows a significant impact on the raw material pricing. This study suggested to take at least 10 years duration for data collection and consider more internal and external factors.
Financial Distress and Earnings Management: Evidence from Sri Lanka
(Department of Accountancy, University of Kelaniya, Sri Lanka., 2022) Kannangara, H. A. R. D.; Buvanendra, S.
This research's main intention is to scrutinise the impact of financial distress on earnings management in selected Sri Lankan listed firms. This study's sample covers two hundred and seven companies listed on the Colombo Stock Exchange (CSE), excluding the financial sector companies, which were chosen based on the availability of data from 2013 to 2017. Earnings management is approximated based on two strategies: accrual earnings management and real earnings management. The Modified Jones model developed by Dechow, Sloan, and Sweeney (1995) is used to calculate the measure of accruals earnings management. The Roychowdhury (2006) developed combined models of abnormal production costs and abnormal discretionary expenditures are used to assess the amount of real earnings management. The study outcomes indicated that financial distress is positively related to accrual earnings management while being negatively associated with the magnitude of real earnings management. This report's denouement offers greater comprehension for financial practitioners to make optimum financial choices.
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.
Impact of Cultural Dimensions on Accounting Practices in Sri Lanka: Study of Accounting Professionals’ Perspective
(Department of Accountancy, University of Kelaniya, Sri Lanka., 2022) Nanayakkara, D. R. N. A. M.; De Silva, P. O.
The accounting harmonization process entails increasing the compatibility of accounting practices while minimizing variance. This process of ordering various accounting practices is vulnerable to a variety of powers, including political, cultural, and legal. Sri Lanka, as a multifaceted and multicultural country, is particularly affected by this issue. However, there is a paucity of research on the cultural trajectories that influence accounting practices in the Sri Lankan context. As a result, the research looks into the impact of the cultural variables on accounting practices in Sri Lanka. The study takes a quantitative approach by distributing 150 questionnaires to accounting professionals using a convenience sampling method. The study articulates Hofstede's cultural dimensions such as power distance, individualism vs. collectivism, uncertainty avoidance, masculinity vs. femininity, long term vs. short term, indulgence vs. restraints, and secrecy vs. transparency in accounting practices, as well as Gray's accounting practices such as professionalism vs. statutory control, uniformity vs. flexibility, conservatism vs. optimism, and secrecy. The study then employs Exploratory Factor Analysis (EFA), Principal Component Analysis (PCA), and Varimax extraction to determine the influence of cultural variables on accounting practices. The extracted factors are accommodated in the multiple regression model to ascertain the impact of cultural dimensions and accounting practices. The current findings emphasize that power distance and individualism are the most dominant cultural dimensions in the given context, resulting in uniform and secretive accounting practices. As a result, the study develops a model tailored to the Sri Lankan context which incorporates the dimensions of Hofstede and Gray. The study demonstrates that a thorough understanding of cultural influences is critical to the success of the process of accounting standard adoption.
Impact of Integrated Reporting Disclosure Level on Value Relevance of Accounting Information - Evidence from Listed Companies in Sri Lanka
(Department of Accountancy, University of Kelaniya, Sri Lanka., 2022) Basnayaka, B. M. S. B.; Priyadarshini, P. L. W.
The introduction of Integrated Reporting Framework by IIRC addressing the need of governing the disclosure of Non – Financial information in corporate annual reports significantly enhanced the accounting information’s value relevance. However, some studies concluded that disclosures do not enhance the value relevance of accounting information. Hence, the current study validates those contradictory ideas & concludes how impacts accounting information’s value relevance in the Sri Lankan context. For that purpose, the current study selected 38 listed companies considering four years of study periods. The disclosure level measured using “ Disclosure checklist” and accounting information’s value relevance measured using proxy measure of the “firm value” by taking the market price per share six months after each financial year ends. This study found that there is an increasing trend among the listed companies in the selected sample in terms of disclosures. However, the extended price model revealed the increasing level of disclosures negatively impacted on firm value or accounting information’s value relevance. The signaling theory considered in this study justified that corporate report user’s reaction to the signals provided through integrated reports with increased level of disclosures resulted in such negative impact regardless of the quantity of information provided through . Hence, this study contributes to the current literature by justifying the negative impact of disclosures on accounting information’s value relevance from signaling theory perspective.