Auditing and internal controls for offshored accounting processes: a research agenda

Abstract

Purpose – The purpose of this study is to develop a research agenda on internal controls for offshored accounting processes. It further develops a linkage between internal controls of offshored accounting processes and auditing of the organization. Offshoring of accounting processes has become a common business practice, pursued by firms to reduce costs and focus on core competencies. However, our understanding about internal controls of these offshored processes is limited. Design/methodology/approach – Grounded in theory that is supported by prior literature and interviews with practitioners, this paper attempts to develop a research agenda on internal controls for offshored accounting processes. Findings – The main findings of our study suggest that while offshoring saves costs and allows the clients to focus on their core competencies, it also poses risks to the clients’ organizations. To mitigate these risks and comply with the regulatory requirements of the countries where the clients are located, clients and their offshore vendors need to effectively establish adequate internal controls for offshored business processes. Clients should seek those vendors who have appropriate processes in place and are willing to provide Service Organization Control (SOC) reports (or at least are capable of getting a SOC report in the near future). Moreover, clients should avoid offshoring the processes that would exist in defective internal control systems. Similarly, vendors should avoid undertaking those processes for which they are incapable of maintaining efficient internal controls. Practical implications – Our study has implications for academicians as well as practitioners on understanding the determinants and consequences of internal control for offshored processes. Originality/value – While internal controls for offshored accounting process and related regulatory changes have been increasingly important topics, little research has been devoted to explore their implications on accounting and auditing literature. We attempt to bridge this gap by synthesizing prior research on internal controls and auditing, and further developing a set of research questions for academic research. Our hope is to spur a new area of research that has not been explored before.

The objectivity of accounting professionals based in India

“…While the authors do not prescribe specific actions, this study provides evidence on the decision-making process of accounting professionals based in India that regulators might use to craft policy. Furthermore, this study responds to calls for additional evidence on the decision-making process of accounting professionals based in India (Spilker et al , 2016; Mohapatra et al , 2015), and for evidence on the objectivity of internal auditors (Burt and Libby, 2021; Stewart and Subramaniam, 2010).…”

“…The concerns are not limited to work offshored by the external auditor. The widening range of responsibilities that have been offshored suggest the effects of systematic biases in offshore accounting professionals are unlikely to be limited to a small subset of disclosures (Dickey et al , 2022; Downey, 2018; Mohapatra et al , 2015). By examining the objectivity of accounting professionals based in India, this study provides critical evidence on the potential effects of an ongoing and significant change in the accounting profession.…”

“…Over the past two decades, US-based accounting firms have consistently increased the portion of audit, tax and consulting work that is completed in locations other than the USA (Dickey et al , 2022; Downey, 2018). Private firms have similarly moved accounting processes overseas, and estimates suggest approximately 22%–29% of all US jobs have the potential to be moved outside the USA (Mohapatra et al , 2015; Blinder, 2009). Accounting professionals based in India have received most of the offshored work (Daugherty et al , 2012; Spilker et al , 2016).…”

“…Second, we contribute to the academic literature on accounting professionals based in India. Mohapatra et al (2015) notes that despite the many changes to firm’s accounting processes, “little research has been devoted to exploring (the) implications on accounting and auditing literature” (p. 12). Spilker et al (2016) note that as Indian accounting professionals are increasingly used to complete US client work and highlight the importance of considering how findings in the USA extend to professionals in other countries.…”

Accountability of local government authorities: A developing economy perspective

“…The questionnaire design is based on reviewing the existing literature on internal controls, managerial competencies and accountability. We operationalize internal controls by measures as control environment, risk assessment, monitoring activities, information technology and control activities (Mohapatra et al, 2015;Zakaria et al, 2016;Pathak, 2005). Managerial competencies was operationalized in terms of attitudes, skills, abilities, experience and knowledge (Koenigsfeld et al, 2012;Qiao and Wang, 2009;Dessler, 2009;Perdue et al, 2000).…”