Client Management’s Assessments of Audit Offshoring and Their Willingness to Trade Off Audit Quality
50 Pages Posted: 4 Oct 2012 Last revised: 7 Dec 2015
Date Written: August 1, 2015
Abstract
Although large audit firms in the U.S. and the U.K. have begun offshoring audit work, there is limited research on this expanding practice. We survey senior-level client management regarding their perceptions of audit offshoring and its impact on audit quality and the audit process. In addition, we use audit offshoring as the context for our experiment to examine clients’ willingness to privately trade off audit quality for lower audit fees. Consistent with prior research on familiarity and country-of-origin, we predict and find that audit clients who are more familiar with audit offshoring are less concerned about its potential negative effects on audit quality than those who are less familiar. However, we find that even many familiar clients are nevertheless concerned about data security and confidentiality and want more transparency regarding audit firms’ offshoring practices. Our experiment provides novel evidence that clients are willing to trade off audit quality for lower audit fees when they know that investors are unaware that they are making this tradeoff. We discuss the implications of our findings for audit firms, clients, regulators, and investors.
Keywords: Audit Offshoring; Audit Practices; Audit Quality; Client Management
JEL Classification: M40, M41, M42
Suggested Citation: Suggested Citation
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