An Empirical Investigation of the Factors Impacting on The Sri Lankan External Auditors’ Ethical Sensitivity

Abstract

This study examines the individual and organizational factors that influence ethical sensitivity among external auditors in Sri Lanka, a profession facing increasing ethical challenges due to economic instability, regulatory changes, and heightened scrutiny. It explores five key predictors: ethical orientation (idealism and relativism), moral intensity, the auditor’s professional experience, level of education, and the ethical culture of audit firms. Additionally, it evaluates the moderating effect of audit firm size on the relationship between ethical culture and auditors’ ethical sensitivity. A quantitative method was used, gathering primary data through a structured questionnaire from 201 external auditors working in both Big Four and non-Big Four audit firms. The data were collected via convenience sampling and analyzed using multiple regression in SPSS. Results show that auditors with a strong idealistic orientation and substantial experience tend to have higher ethical sensitivity, while those with relativistic beliefs tend to have lower sensitivity. Surprisingly, moral intensity and educational level did not significantly influence ethical sensitivity. Although ethical culture alone did not have a strong direct effect, its impact became significant when moderated by firm size, implying that larger firms with more formalized ethical frameworks can better promote ethical awareness. These findings highlight that both personal ethical beliefs and organizational structure play key roles in how auditors perceive and handle ethical dilemmas. The study adds to the broader literature on ethical decision-making by including a firm-level moderator and addresses the lack of empirical data from post-crisis South Asian economies. It also provides practical insights for regulators, educators, and firm leaders aiming to foster ethical behavior in the profession.