Offshore Shared Services Center Usage by U.S. Big 4 Audit Engagement Teams

Abstract

Auditors frequently outsource audit work to offshore Shared Service Centers (SSCs) to reduce costs and ease the workload burdens of audit team members. However, concerns persist about whether these benefits come at the expense of audit quality. Using proprietary audit engagement-level data, I evaluate whether greater SSC usage by Big 4 audit teams has an association with either, or both, audit quality and audit costs. I find that SSC usage is nearly universal in Big 4 audits, with the percentage of audit hours SSCs perform increasing in recent years. Consistent with the audit firm’s objectives, evidence suggests that SSC usage is associated with fewer audit hours and lower audit fees. Importantly, I find no evidence that SSC usage is associated with lower audit quality. Overall, results suggest that SSCs have the intended effect of reducing audit costs without sacrificing audit quality.

Keywords: shared services centers, audit engagement economics, audit quality, PCAOB, offshoring

JEL Classification: M4