The Effects of Offshoring Audit Tasks on Jurors’ Evaluations of Damage Awards Against Auditors

Abstract

Offshoring is the process of using unaffiliated foreign companies or affiliated offshore entities (AOEs) to manufacture goods or perform services. The Big 4 public accounting firms offshore tax services (Houlder, 2007) and, more recently, have started to offshore audit tasks of their U.S.-based clients to AOEs located in India (Daugherty & Dickins, 2009). While the benefits of offshoring might be substantial, there are also costs associated with moving domestic work to foreign locations. One of these costs may be greater damage awards in lawsuits involving an audit failure where audit tasks were performed overseas as opposed to the United States. This study investigates that possibility by experimentally examining the effect of offshoring audit tasks requiring different levels of judgment on the amount of damages awarded by potential jurors as a result of an audit failure. The results show potential jurors awarded greater damages against the auditor when audit tasks were performed offshore than when they were performed in the United States. There was no effect of the level of judgment of the audit task on damages awarded. Since this study examines offshoring to only one location, India, results may not be generalizable to other offshore locations.

Citation

Daugherty, B., Dickins, D. and Fennema, M.G. (2014), "The Effects of Offshoring Audit Tasks on Jurors’ Evaluations of Damage Awards Against Auditors", Advances in Accounting Behavioral Research (Advances in Accounting Behavioural Research, Vol. 16), Emerald Group Publishing Limited, Leeds, pp. 55-84. https://doi.org/10.1108/S1475-1488(2013)0000016008