Offshored External Audits Expose Regulatory Issues

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Big 4 audit firms are quietly offshoring portions of the external audit work for publicly held companies, raising a bevy of questions about whether the work is visible to the companies themselves, their investors, and even regulators.

 … Audrey Gramling, president of the American Accounting Association and a professor at Kennesaw State University, says the movement to offshore external audit work was a topic of discussion at an AAA conference in January.

She says the firms positioned the practice as a staff development effort to move mundane, repetitive tasks outside the United States and leave U.S. personnel with more challenging (read: more expensive) work.

 … Gramling agrees that audit quality, monitoring, and training are concerns audit firms must address if they plan to expand their use of offshoring. “When you get into the international arena, I worry whether the same level of quality is actually in place in other countries,” she says. “A client in the United States can work face-to-face with the audit team and can see if they’re competent. When it’s offshored, they can’t get that sense of whether they’re competent.”

At the AAA meeting Gramling attended, the firms acknowledged the practice and provided some brief remarks, she says, but she also worries whether the firms are being completely transparent. “This is certainly a question that audit committee members should ask their audit firms,” she says. “Hopefully the firms have not adopted a ‘don't ask, don’t tell’ rule with respect to whether aspects of the audit engagement are offshored.”