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.