Offshoring and Audit Reviewer Effectiveness

In order to reduce costs, audit firms have begun transferring audit tasks to offshore locations in countries such as India. Consequently, new audit associates no longer perform these tasks. They are, however, asked to review them. If gaining experience completing audit tasks is an important building block to effectively reviewing those tasks, then offshoring may negatively impact future audits. Using an experiment, we investigate this concern and find that auditors who lack experience completing relatively complex audit tasks are less effective during the review phase of an audit than are auditors who have experience completing the tasks. We also find that a simple training exercise does not eliminate this problem. Our results highlight a potentially hidden cost of offshoring, one with important implications for audit firm training if offshoring trends continue.