The Impact of Thinking Approach on Offshore Auditors’ Judgment Quality in Performing Analytical Procedures

• In Event: Auditor Thinking: Approach, Intuition, and Mindset

Abstract

There is concern regarding the quality of audit work conducted in offshore service centers (e.g., PCAOB 2015; CAQ 2015). One criticism raised is that offshore auditors tend to adopt a more reductionist, “tick-box” approach to auditing. We conducted a 2×2 quasi-experiment in which we manipulated thinking approach (system thinking versus reductionist thinking) between-subjects and compared the judgment quality of 44 offshore auditors located in India and 50 onshore auditors located in U.S. and Australian Big 4 firms (onshore versus offshore auditors). Our results indicate that onshore auditors achieve higher judgment quality than offshore auditors for the analytical procedure task. Use of a systems-thinking approach helps offshore auditors to achieve better judgment quality as measured by the likelihood allocated to a CFO explanation. The evidence is however mixed with respect to the effect of the interaction between offshore location and type of thinking approach, suggesting that the concerns regarding offshoring cannot be simply explained by offshore auditors adopting a reductionist auditing approach. Our research provides some support for continued concerns surrounding offshoring and is relevant to calls for maintenance of adequate quality control across both onshore auditors and offshore service centers (e.g. IAASB 2019).

Authors

• Skye Zhu, Australian National University

• Neil L Fargher, Australian National University

• Soon-Yeow Phang, Monash University - Caulfield