We have at least six big questions.
In what may be the first study of its kind, researchers report that the large international accounting firms are offshoring traditionally domestic audit procedures.
“Offshoring is intuitively appealing on many levels, but it leads to yet-unanswered questions,” researchers say.
For example:
- After consideration of all maintenance, monitoring, and quality control processes , how incrementally profitable is the offshoring of audit procedures?
- What types of procedures are appropriate for offshoring?
- Do clients, investors, standards setters, regulatory agencies, judges, and jurors see differences in audit quality when companies offshore domestic audit procedures?
- What are the impacts of offshoring on accounting firms’ domestic and foreign recruiting and staff development efforts?
- How do you maintain privacy, security and confidence.
- How many U.S. jobs are affected?
According to the Global Financial Services Offshoring Report 2007 by Deloitte & Touche U.SA LLP, over 75% of major financial institutions report offshoring a portion of their operations. Some economists estimate that up to one-third of total U.S. employment in services may ultimately be offshored. Offshore entities often operate in developing countries such as India, China, Pakistan, the Philippines, and Vietnam.
The offshoring of business processes generally takes two forms: outsourcing to an unaffiliated offshore entity (offshore outsourcing), or ownership and operation of an affiliated offshore entity (AOE). Many multinational companies have AOEs. For example, Accenture has more employees in India than in the United States; IBM is projected to have more than one-quarter of its workforce in India by 2010; and companies like General Electric, Eli Lilly, Google, and Microsoft are expanding their R&D centers in India and China.
The primary impetus for the offshoring of audit procedures is to fight “fee-fatigue” by clients, due in large measure to the increased reporting and compliance requirements mandated by the Sarbanes-Oxley Act of 2002 (SOX). The “all-in” cost of a chartered accountant at the firm’s Inthan AOE is approximately one-quarter that of the employee’s U.S. equivalent.
More here: Offshoring The Independent Audit Function – 1/19/2009 – insurancenewsnet.com.
Hat tip to Francine McKenna
