Working Paper: Offshore Shared Services Center Usage by U.S. Big 4 Audit Engagement Teams 

Paper Author: Matthew G. Sherwood

Abstract: Using proprietary, engagement-level data, I investigate the trends, determinants, and influence of offshore Shared Services Center (SSC) usage on Big 4 audit engagements. First, I report that SSC usage has become nearly universal on Big 4 audit engagements, with the number and the percentage of audit hours SSCs perform increasing significantly during the sample period. Second, I find that audit engagement teams consider client complexity and engagement timing when determining the percentage of the audit SSCs perform. Third, I do not find an association between the percentage of the audit SSCs complete and audit quality, suggesting SSC usage neither hinders nor improves audit quality. Finally, I find a negative relation between SSC usage levels and audit revenues (i.e., fees), costs (i.e., hours), and billable rates but a positive relation with engagement profitability (i.e., realization rate). These findings suggest SSCs allow auditors to maintain audit quality and increase engagement profitability while reducing audit costs, a portion of which they pass to clients through lower fees. This study provides the first archival evidence on Big 4 SSC usage trends, the characteristics influencing them, and their association with audit quality and engagement economics and should be informative to regulators, academics, and audit committees.

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