THE IMPACT OF FIRM ATTRIBUTES ON AUDITOR SELECTION: A STUDY OF LISTED COMPANIES IN SRI LANKA

Abstract

This study examines the impact of firm attributes on auditor selection for companies listed on the Colombo Stock Exchange (CSE) in Sri Lanka, excluding the banking sector. Sri Lankan law requires all listed companies to appoint an independent auditor to audit their financial statements. This provides an opportunity to examine differences in auditor preferences where this decision makes a difference in the quality of the audit. This research aims to evaluate the impact of firm attributes on auditor selection and assess the relationship with the decision to select an auditor. The study uses a quantitative research method using secondary data from annual reports for the period 2019 to 2023. A binary logistic regression model is used to analyse the impact of profitability, Firm age, complexity, and leverage in auditor selection. The dependent variable is a binary indicator that distinguishes the Big 3 auditors from other auditors. Correlation analysis and logistic regression revealed significant relationships between firm attributes and auditor choice. Profitability and Complexity have a significantly positive impact on the selection of a Big 3 auditor, while leverage has a negative impact on this choice. Meanwhile, firm age does not show a significant impact on the choice of auditor. This study provides important insights into the impact of firm attributes on the demand for high-quality audits in an emerging market with mandatory audit requirements. The findings are important for regulators, enforcement agencies, and investors, as they identify the role of firm-specific factors in shaping the dynamics of auditor selection. The contribution of this research to the literature is in the extension of the understanding of audit choice determinants in a regulated market, emphasising the importance of empirical evidence derived from audited financial statement