Investors' Perception and Audit Expectation-Performance Gap (AEG) in the Context of Listed Firms in Sri Lanka

CA Journal of Applied Research, 2019, vol. 3, pp. 1-27.

27 Pages Posted: 15 Jan 2020

See all articles by Sandhya Jayasena

Sandhya Jayasena

Rajarata University of Sri Lanka

Roshan Ajward

University of Sri Jayewardenepura

Hareendra Dissabandara

University of Sri Jayewardenepura

Date Written: December 25, 2019

Abstract

Corporate failures around the globe in recent times have placed the auditing profession in the spotlight. The profession is beset by confusion and crises caused by the differences in the beliefs held by auditors and the public concerning the auditor’s duties, which have even led to lawsuits against auditors. This situation is the result of what is known as the ‘Audit Expectation–Performance Gap’ (AEG). In the light of the contemporary importance of the subject, lack of theoretical underpinnings of the causes of AEG and the dearth of studies on it in Sri Lanka, the present study attempts to ascertain the status of AEG and to examine the factors contributing to AEG, in the Sri Lankan context. A positivist approach was adopted and a structured questionnaire survey done involving professional auditors and investors of listed firms. The results of independent sample t-test indicated a statistically significant difference between the perceptions of professional auditors and investors regarding the duties of auditors in the context of listed firms in Sri Lanka. The relative contribution to the overall AEG was that much of the gap (50 per cent) in AEG was attributable to deficient standards, 16 per cent to unreasonable expectations of society about auditors’ duties, and 34 per cent was due to the perceived sub-standard performance of auditors. On the other hand, in terms of the contributory factors, the mean ranking with one sample t-test results found that 12 factors contributed significantly to AEG. The main contributory factors highlighted by respondents were the lack of auditing education and lack of auditing experience among users. Thus, as regards policy implications, it was noted that policymakers and regulators need to increase community awareness through audit education to reduce AEG in Sri Lanka as one of the main measures.

Keywords: Audit Education, Audit Expectations Gap, Duties of Auditors, Factors, Institutional Theory, Porter Model (1993)

Suggested Citation

Jayasena, Sandhya and Ajward, Roshan and Dissabandara, Hareendra, Investors' Perception and Audit Expectation-Performance Gap (AEG) in the Context of Listed Firms in Sri Lanka (December 25, 2019). CA Journal of Applied Research, 2019, vol. 3, pp. 1-27., Available at SSRN: https://ssrn.com/abstract=3509438 or http://dx.doi.org/10.2139/ssrn.3509438

Sandhya Jayasena (Contact Author)

Rajarata University of Sri Lanka

Mihintale, North Central 50300
Sri Lanka

Roshan Ajward

University of Sri Jayewardenepura ( email )

Nugegoda
Gandodawila
Gangodawila, Nugegoda 10250
Sri Lanka
0714837303 (Phone)
10250 (Fax)

Hareendra Dissabandara

University of Sri Jayewardenepura ( email )

Nugegoda
Gandodawila
Gangodawila, Nugegoda 10250
Sri Lanka

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