Accounting Outsourcing and Audit Lag

• In Event: Continental Breakfast - Research and Education Forum
  In Roundtable Session: Table 9: Clients' Accounting Systems and the External Audit

Abstract

Bierstaker et al. (2013) note the limited amount of research regarding outsourcing and the audit process. One aspect of the audit process that may be influenced by outsourcing is the time needed to complete the audit (i.e., audit lag). Outsourcing may either enhance the objectivity of accountants and thereby reduce misstatement risk and audit lag, or accounting outsourcing may require more coordination among the auditor, the client and the outside accounting service provider, and thereby increase audit lag.
Closed-end mutual funds often outsource their accounting process, and there is disclosure about whether funds outsource their accounting. We examine the relationship between outsourcing and audit lag for a sample of 1,238 closed end fund-years. We find evidence that accounting outsourcing is associated with a longer time required to complete the audit, suggesting that outsourcing may slow down the audit due to increased coordination time.

Authors

• Charles P. Cullinan, Bryant University

• Xiaochuan Zheng, Bryant University