Embedding offshoring services in the accounting profession
Name: Reinou Bergsma Student number: 10794336
Thesis supervisor: Prof. dr. B.G.D. (Brendan) O’Dwyer Date: 26 June 2017
Word count: 24547
MSc Accountancy & Control, specialization Accountancy and Control Faculty of Economics and Business, University of Amsterdam
Statement of Originality
This document is written by student Reinou Bergsma who declares to take full responsibility for
the contents of this document.
I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it.
The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.
Abstract
Since the expansion of the global market the number of organizations that offshore and outsource services is growing rapidly. Big Four accounting firms have offshored tax services for a number of years (Shamis et al. 2005; Brody et al., 2006). However, a new trend within the audit practices of the Big Four accounting firms is offshoring audit practices. This new trend in the field of audit is a new phenomenon and therefore the use of offshoring in audit has not been researched a lot. Some concerns are raised in the literature about offshoring: the perceived quality of offshored work (Shamis et al. 2005, p. 60; Dee, Lulseged & Zhang, 2014, p. 1963), the impact on the reputation of the audit profession (Brody et al., 2006, p. 69) and the potential negative reaction against the profession for offshoring domestic jobs during a time of high unemployment (Shamis et al. 2005, p. 61 and Brody et al. 2006 p. 69). All these concerns are focussed on the external viewpoint of the audit profession. There is no previous literature on the internal perspective of the employees on the use of offshoring and how it is embedded in the organization.
This study therefore focuses on how the use of offshoring is legitimized and embedded within a Big Four accounting firm. It examines the perceptions of employees within the Big Four accounting firm who are working with offshoring services. For this study the concept of institutional theory and forms of legitimacy is mobilised. This study reveals what forms of institutional work were used to establish legitimacy of offshoring services within the Big Four accounting firm.
For this study twelve employees were interviewed that work for the financial institutions audit department inside a Big Four accounting firm. During the analysis of the transcripts it was evident that embedding offshoring in the organization can be seen as a process. This process can be separated in different phases: history, re-design of the offshoring process, pilot and the expansion of offshoring services. In each phase institutional theory is used to study the process. Furthermore, several motives were suggested in the transcripts for using offshoring services. The participants gave their notion about the future of offshoring.
The results of this study are relevant for Big Four accounting firms that also use offshoring practice, because it provides insights in the process of implementing and embedding offshoring services in an organization. Moreover, the results of this study are relevant for firms that are planning to implement the use of offshoring within their organization. Besides this, it shows that the institutional forms of work are used twice to establish cognitive legitimacy.
Contents
1 Introduction ... 6
1.1 Background ... 7
1.1.1 Offshoring and outsourcing audit practices ... 7
1.1.2 Previous literature ... 7
1.2 Research question ... 8
1.3 Motivation of the study ... 8
2 Literature review ... 10
2.1 Offshoring and outsourcing ... 10
2.1.1 Definition ... 10
2.1.2 Implications for the audit profession ... 11
2.2 Institutional theory ... 12
2.2.1 The concept of institutional work ... 12
2.2.2 Forms of institutional work ... 13
2.3 Legitimacy... 15
2.3.1 Forms of legitimacy ... 16
3 Research methodology ... 18
3.1 Documentary data analysis ... 18
3.2 Interview evidence ... 19
3.2.1 Sample ... 19
3.2.2 Interview data analysis ... 21
4 Case analysis ... 23
4.1 History ... 23
4.1.1 Start of using offshoring ... 23
4.1.2 Expanding the use of offshoring ... 25
4.2 Re-designing the process ... 27
4.2.2 Expansion of services ... 36
4.3 Difficulties in offshoring services ... 40
4.3.1 Time saving ... 41
4.3.2 Quality ... 42
4.4 Limitations offshoring ... 43
4.4.1 Flexibility last-minute requests ... 43
4.4.2 Education of the assistants ... 44
4.5 Implications for the future ... 46
4.5.1 Quality ... 46
4.5.2 Human resources ... 46
5 Discussion ... 49
6 Conclusion ... 55
References ... 57
Appendix A: Internal documents used for documentary analysis ... 61
Appendix B: Drawing of job level pyramid ... 62
1 Introduction
The purpose of this study is to research how the offshoring process of standardized audit work is embedded in the Big Four accounting firm, and how legitimacy is gained by examining perceptions of employees. Due to the expansion of the global market the number of organizations that offshore and outsource services is growing rapidly. Although the level of service offshoring in the U.S. is still low compared to material offshoring (i.e. offshoring of production), the expectation is that offshoring services will grow as new technologies make it possible to access cheaper foreign labour and different skills (Amiti & Wei, 2009, p. 219). Furthermore, the benefits of offshoring will increase the number of services that are outsourced. Daugherty and Dickers (2009, p. 60) state that the benefits of offshoring are primarily attributable to the savings from lower personnel costs at foreign locations.
Big four accounting firms made substantial effort to construct a global market for professional services by acting as agents of regulatory change. These efforts established the framework for offshoring, the accounting firms rely on employees in offshore audit centres to perform standardized audit work for U.S. companies (Suddaby et al. 2007; Hanes, 2013, p. 4). It is evident that the benefits of offshoring and outsourcing are also noticed in the accounting profession. The offshoring of standardized audit work in the big accounting firms emerges. Aubin and Chatterjee wrote on the news platform Reuters (2012) that all the Big Four accounting firms in the U.S. offshore routine and systematic work to India. Furthermore, Brady et al. (2011 p. 3) state that estimates suggest that Big Four accounting firms use offshore services to perform between five and twenty percent of core audit work.
Although the emergence of offshoring audit services occurs, most of these firms note very little about offshoring in their transparency reports. PwC (2016, p. 12) in their transparency report only states that the chance of errors reduces by standardizing and automating audit procedures. They say that this allows them to place work at specialized ‘quality enhancement’ delivery centres. Compared to last year they transferred 20% more hours to the delivery centres. PwC mentions only once the use of offshoring work to delivery centres. Different accounting firms use several names for their offshoring practices. Firms refer to their offshoring centres as either Audit Delivery Centers (Deloitte, 2016, p. 17) or Global Delivery Centers (EY, 2016). In all transparency reports published by Big Four accounting firms little or none is mentioned about outsourcing and offshoring. This is strange because on the other hand Aubin et al. (2012) states in Reuters that offshoring is emerging in the audit practice in the U.S. since 2012 onwards. PwC states that they increased the number of hours outsourced compared to last year. All these statements shows that
there is more emphasize on offshoring which might influence the role of the employee in the future.
Some challenges around offshoring audit practices may arise. For example, Doh (2005 p. 695) states that offshoring is likely to present challenges to societies, corporations, and stakeholders for many decades. Based on Doh (2005) the implementation of offshoring services in the audit practice also impacts the internal environment of corporations.
1.1 Background
1.1.1 Offshoring and outsourcing audit practices
It is known in literature that the Big Four accounting firms have offshored tax services for a number of years (Shamis et al. 2005; Brody et al., 2006). However, a new development within the audit practices of the Big Four accounting firms is offshoring audit practices. The Big Four accounting firms started offshoring audit tasks related to their U.S.-based audit clients to their affiliated offshore entities (AOEs) in India within the last decade. These AOEs are staffed by Indian employees with U.S. managers and partners working offshore on a rotational basis (Daugherty & Dickins & Fennema, 2013, p. 56; Hanes, 2013, p. 4).
1.1.2 Previous literature
Outsourcing and offshoring in the audit practice raised many questions. Some concerns are the perceived quality of outsourced and offshored work (Shamis et al. 2005, p. 60; Dee, Lulseged & Zhang, 2014, p. 1963), the impact on the reputation of the audit profession (Brody et al., 2006, p. 69) and the potential negative reaction against the profession for offshoring domestic jobs during a time of high unemployment (Shamis et al. 2005, p. 61 and Brody et al. 2006 p. 69). Since outsourcing of audit practices is a new phenomenon there is a lack of literature about the impacts on several areas of these questions. The little literature which is available does not provide an insight on how outsourcing influences the audit profession within a Big Four accounting firm. Therefore, more research is necessary to get an insight in this development.
Big Four accounting firms use the expert solutions type of organizational learning. This involves the application of existing knowledge and procedures to planned solutions as part of long-term projects. In other words, detailed tacit knowledge on how existing solutions work were encouraged and learned by on-the-job training and close coaching of staff by more experienced staff (Swart & Kinnie, 2010, p. 72). In the case of a Big Four accounting firm new staff will audit the easier account balances with support of more experienced staff members. This audit work is
more standardized compared to the more complex account balances. During the first year the staff employee will get more challenging tasks but will still perform the easier account balances. During the first two years of the new staff members get training from more experienced staff members. The concept of this learning is that later in their career they will be able to work independently and coach the new staff. The idea behind this is that you start learning from the bottom. Due to the development outsourcing and offshoring most of this standardized audit work is not done anymore by the staff employees within a Big Four accounting firm.
1.2 Research question
This study aims to give more insight into the emergence of offshoring, which is a new trend in the audit profession. The purpose of this study is to investigate how a Big Four accounting firm legitimizes and embeds the use of offshoring. A little research have focussed on this new trend in the audit profession. However, several studies imply that using offshoring could have implications on the internal dynamic within a Big Four accounting firm (Daughtery et al. 2009; Hanes, 2013)
To study the perspectives of Big Four accounting firm’s employees on offshoring standardized audit work and to examine how the use of offshoring is institutionalized within the Big Four accounting firm, the following research questions is formulated:
How is the use of offshoring standardized work embedded and legitimized in a Big Four accounting firm?
This case study is focused on process on how a new way of working (using offshoring) within a field (Big Four accounting firm) is legitimized. In other words, in this case study is focussed on the process of embedding new audit practices (i.e. offshoring) and how legitimacy is gained within a Big Four accounting firm.
1.3 Motivation of the study
In order to study this topic a case study is performed within a Big Four accounting firm. This study contributes to the emerging research that examines the offshoring work. Moreover, the use of qualitative research techniques provides understanding on how the process is embedded in the organization and on the notion of the employees that are involved in this new trend. As already mentioned, there is a lack of prior literature about offshoring and outsourcing standardized audit work. In order to get a first insight on this topic, performing a qualitative case study is most suitable (O’Dwyer, Owen & Unerman, 2011, p. 38).
In terms of contribution, this study is the first that explores the perceptions of the employees about offshoring. As such, this study addresses to the numerous calls to investigate the offshoring process more in detail (Daughterly et al. 2009; Lyubimov, Arnold and Sutton. 2012; Hanes 2013; Asmussen et al. 2016). This study elaborates on the call from Asmussen (2016, p. 925) to study the costs and benefits when a firm adopts offshoring. Furthermore, this study replies to the request of Daughterly et al. (2009, p. 65) to study the impact of offshoring on the accounting firms’ staff developments and recruitment policies. Moreover, it studies the changes in the day-to-day auditing that have occurred (Hanes, 2013, p. 26). Besides this, this study compromises the viewpoint and perceptions of auditors in a Big Four accounting firm. Which is not always accessible to other audit researchers (Lyubimov et al. 2012, p.116). Therefore, this study will contribute to the literature by studying the new trend, offshoring services, in the audit profession and the data for this is gathered from a Big Four accounting firm.
Furthermore, during this study the process of legitimizing and embedding offshoring in the Big Four accounting firm is studied by using the institutional theory. The institutional theory is mostly used in previous accounting studies to examine change outside the accounting firms (Canning and O’Dwyer, 2016; Griffith, Hammersley & Kadous, 2015). In contrast to those studies this study examines the change inside an accounting firm by using the institutional theory.
Nevertheless, this is the first qualitative study that focuses on the perspective of Big Four auditors on the use of offshoring. Since there is little or no research that is covering this new trend which is emerging in the audit profession (Reuters, 2012). Therefore, this new way of working is relevant to study since it is new and subjected to uncertainties and politics within the Big Four accounting firm. Moreover, these uncertainties require the firm to establish this new way of working. In addition, the study is also interesting from the viewpoint of an audit firm. Since, this study is obtaining insights that might be useful for other accounting firms that might want to implement offshoring services. Besides this, it might also be relevant for the Big Four accounting firm that is examined to gain more insights in the perceptions of the employees on offshoring services. Based on this information, the firm might be inclined to change the process or improve the use of offshoring services.
To conclude, this study will gather data by interviewing employees of a Big Four accounting firm. This study offers an insight in the process of embedding a new practice in an organization and the perceptions of the employees on this new practice.
2 Literature review
This chapter gives an overview of the existing literature about offshoring and outsourcing. Furthermore in order to study the process how offshoring is embedded in the organization and how it is legitimized the institutional theory and legitimacy theory is used. In paragraph two institutional theory is described and paragraph three depicts literature about legitimacy theory.
2.1 Offshoring and outsourcing
The concept of offshoring and outsourcing has been used in different academic literature. In the following paragraph, the definition of offshoring and outsourcing is given. Furthermore, the implications of offshoring are described.
2.1.1 Definition
The concepts offshoring and outsourcing are often used interchangeably. Daugherty, Dickins and Fennema (2012, p. 734) define outsourcing as contracting out of a business function to an external provider. Offshoring is defined as public accounting firms that use AOEs outside their highly developed country to perform audit and tax work. Contractor, Kumar, Kunda and Pedersen (2010, p. 1417) describe offshoring and outsourcing in more detail. They define outsourcing as organizational restructuring of some activities. They describe two types of outsourcing first in the nation of the firm and second abroad. Both types of outsourcing can be used within a company. On the other hand offshoring is restructuring the firm along another dimension, namely geographically. Lyubimov, Arnold and Sutton (2012, p. 98) describe the difference as follows.
Outsourcing is when an organization delegates work to a different organization. If this work performed overseas it is called offshoring.
Since the terms offshoring and outsourcing are used interchangeably and because of the multiple definitions both terms require refinement for this study. For the continuation of this study the offshoring definition of Daugherty et al. (2012, p. 734) is used. Offshoring is defined as public accounting firms that use AOEs outside their highly developed country to perform audit and tax work. As stated before the words outsourcing and offshoring are used interchangeably, however in the case study the standardized work is offshored as described in the definition of Daugherty et al. (2012, p. 734).
2.1.2 Implications for the audit profession
Youngdahl, Ramaswamy, & Dash (2010) describe the evolvement of offshoring. They state that the emergence of offshoring increases over time as the role of offshore services operation evolves. The authors divide the evolution process in the offshoring practice in three stages:
1. The routine processing functions are offshored and this is done via basic telecommunications.
2. Creating more solutions based offshoring tasks
3. Offshoring centres offer a variety of services from contact centres to new product development. In order to achieve this companies need a sophisticated labour pool.
The result of their study is that offshoring centres evolve to higher standards that are used in developed country levels over time. This process of the development is also described by Milberg and Winkler (2011). They describe that companies offering offshore services started with simple jobs like call centres. Later on includes more advanced business services such as finance and accounting.
The evolvement of offshoring in the audit practice is emerging due to the fact that Big Four accounting firms started with outsourcing tax practices. Tax services are already outsourced for a number of years (Daugherty et al. 2013, p. 2). Sako (2006, p. 507) states that transactional processes such as general accounting and accounts payable are typically subjected to standardization and offshoring. The development of standardization of audit work together with the potential advantages of offshoring practices in tax activities have been noticed by the accounting profession.
In literature a lot is written about the advantages that outweigh the disadvantages of offshoring. One primary advantage of offshoring work that is described in the literature is cost saving. Farrell (2005, p. 676) confirms this with examples of cost savings due to outsourcing in the United States and Germany. Moreover, Lewin and Peeters (2006, p. 226) state that cost savings are the main strategic drivers of offshoring.
Another advantage which is described by Farrel (2005, p. 679) is the round-the-clock shifts. The most efficient way to use human capital more intensively is to work around-the-clock-shifts. Since companies can operate 24 hours a day in such environment. However, in high-wage countries this situation cannot exist. Daugherty et al. (2012, p. 735) also emphasis this stating that another primary driver of offshoring is the ability to work around the clock by taking advantage of time zone differences.
As much as the benefits of offshoring have attracted firms, there are also disadvantages associated with offshoring. One primary disadvantage stated by Lewin and Peeters (2006, p. 226) is the internal resistance in the organization that is planning to offshore work. The main reason for resistance is the lack of cultural fit. In most organizations it is not perceived to fit in the corporate culture and values. Furthermore, cultural differences may also be a barrier that arises is how to manage and collaborate with personnel from another culture. Moreover, Farrel (2005, p. 681) found that people lost jobs due to the use of offshoring. Therefore people are feeling resisted to use offshoring because they are scared to lose their jobs.
In addition to the disadvantages Asmussen, Larsen and Pedersen (2016, p. 911) note that many firms struggle to reap the economic returns from offshoring without getting overwhelmed by the complexity of coordination dispersed across vast distances. Asmussen et al. (2016, p. 912) investigated the implications of two learning strategies that firms might use for offshoring. On the one hand, firms can pursue a ‘host-based learning strategy’, in which they gain knowledge after relocation has taken place. Thus, possible configuration to the offshoring process is taking place while activities are already relocated. On the other hand, firms can follow a ‘home-based learning strategy’, in which the firm gains knowledge prior to relocation. When using this strategy firms experiment with different configurations while the operations are still used locally. The authors found evidence that in situations with high levels of uncertainty, firms benefit from pursuing host-based learning strategies despite vast distances and costly coordination requirements (Asmussen et al. 2016, p. 924).
2.2 Institutional theory
In this study it is examined how offshoring is embedded within the organisation and through which phases this process went through. In order to study how offshoring is embedded on the financial institutions audit department within a Big Four accounting firm, the concept of institutional work from the literature of Lawrence and Suddaby (2006) is used. In this paragraph the different forms of institutional work and their underlying work involved in each of these categories are described.
2.2.1 The concept of institutional work
Scott (2005, p.2) states that institutional theory considers the process by which structures become established as authoritative guidelines for social behaviour. The theory describes how these elements are created, diffused, adopted, and adapted over time and how they fall into decline and disuse. Greenwood and Suddaby (2006, p. 27) argue that institutional theory focuses on explaining
how institutionalized structures of meaning affect organizational processes. Institutions are described in Lawrence et al. (2006 p. 216) as the product of specific actions taken to reproduce, alter and destroy them. Institutional entrepreneurs play a central role in the institutional process. These entrepreneurs see the institutional change as an opportunity to realize interests that they highly value.
Although, much of the literature of institutional theory concentrates on how organization converge on established institutionalized practices, the theory also describes how organizations change common practices. Change occurs in reaction to events that destabilize the acceptability of current practices (Griffith et al. 2015, p. 837). These events encourage the organization to introduce new ideas and the considerations that needs to change. This leads to the event that organizations innovate and seek solutions to the identified problems (Greenwood et al. 2006, p. 28). The change becomes accepted in the organization as social consensus about its value develops and it becomes fully institutionalized when widespread adoption of the methods occurs (Griffith et al. 2015, p. 837).
The accounting researchers used institutional theory to understand the efforts made by individuals through institutional change in the regulation of accountants through the formation of an oversight body (Canning et al. 2016) and to examine problems surrounding audits. Furthermore, institutionalization is also used to examine if the oversight body provides change in auditing practices related to estimates (Griffith et al. 2015, p. 836). Apart from studying the oversight bodies, Suddaby and Greenwood (2006) examine the development of consulting within public accounting firms in Canada. These authors note that difficulty with institutional theory lies in explaining how and why people in a specific institution become motivated to change. In this study the focus will be on how a new audit practice (offshoring) is embedded and legitimized within the financial institutions audit department within one Big Four accounting firm (field).
2.2.2 Forms of institutional work
Lawrence et al. (2006) structured institutional work in three broad categories: the work entails 1) creating, 2) maintaining and 3) disrupting institutions.
Creating work is instituting rules and constructing rewards and sanctions that enforce these rules (Canning et al., 2016, p. 4). Lawrence, Suddaby and Leca (2009, p. 8) note that creating work can be broken into three types: the first type is political work in which actors reconstruct rules and boundaries that define access to material resources, the second type are actions in which actors' belief systems are reconfigured and the last type are actions designed to alter abstract categorizations in which the boundaries of meaning systems are altered. Canning et al (2016, p. 4)
describes that maintenance work entails supporting, repairing and recreating social mechanisms that ensure compliance with existing institutional norms. The last category, disrupting institutions involves attacking or undermining the mechanisms that lead actors to comply with institutions (Canning et al., 2016, p. 4). Table 1 reflects and describes the work involved in each of these categories.
Canning et al. (2016, p. 4) describe that this categorisation is simplistic, because it assumes that the institutional change process happens in a linear manner and that the institutional work, such as creating, maintaining and disrupting replace each other. In their study Canning et al. uncover that institutional change does not always happen in a linear manner (2016, p. 8). In addition, they also demonstrate that certain forms of institutional work persisted, others disappeared, while others in turn re-emerged (2016, p. 6). In other words Canning et al. show that the institutional work could go from creating towards disrupting and back again to creating and that some forms of institutional work are not always present. Besides this, the types under each categories could also be categorized under another category (Canning et al. 2016, p. 16). For example, advocacy could also be present in the maintenance category while in the study of Lawrence et al. (2006) the categorisation in table 1 is used.
In addition to the institutional work that is depicted in table 1, advocacy is separated into soft advocacy and hard advocacy in this study. Canning et al. (2016, p. 8) nuanced the advocacy work in their study on regulatory change in the accounting profession. Soft advocacy work is the use of subtle, largely implicit, unthreatening techniques of social suasion. It is seeking for consensus instead of conflict and mobilizes gentle rhetoric while avoiding direct confrontation. In contrast to this, hard advocacy is the use of highly direct, explicit, confrontational, and threatening practices of social suasion which mobilizes explicit contrasts outlining terrible consequences.
Creating institutions
Advocacy The mobilisation of political and regulatory support through direct and deliberate techniques of social suasion.
Defining The construction of rule systems that confer status or identity, define boundaries of membership or create status hierarchies within a field.
Vesting The creation of rule structures that confer property rights.
Constructing identities Defining the relationship between an actor and the field in which that actor operates. Changing normative
associations Re-making the connections between sets of practices and the moral and cultural foundations for those practices Constructing normative
networks Constructing inter-organizational connections through which practices become normatively sanctioned and which form the relevant peer group with respect to compliance, monitoring and evaluation.
Mimicry Associating new practices with existing sets of taken-for-granted practices, technologies and rules in order to ease adoption.
Theorizing The development and specification of abstract categories and the elaboration of chains of cause and effect.
Educating The educating of actors in skills and knowledge necessary to support the new institution.
Maintaining institutions
Enabling work The creation of rules that facilitate, supplement and support institutions, such as the creation of authorizing agents or diverting resources.
Policing Ensuring compliance through enforcement, auditing and monitoring. Deterring Establishing coercive barriers to institutional change.
Valourizing and demonizing Providing for public consumption positive and negative examples that illustrate the normative foundations of an institution.
Mythologizing Preserving the normative underpinnings of an institution by creating and sustaining myths regarding its history.
Embedding and routinizing Actively infusing the normative foundations of an institution into the participants' day to day routines and organizational practices.
Disrupting institutions
Disconnecting
sanctions/rewards Working through state apparatus to disconnect rewards and sanctions from some set of practices, technologies or rules. Disassociating moral
foundations Disassociating the practice, rule or technology from its moral foundation as appropriate within a specific cultural context. Undermining assumptions and
beliefs Decreasing the perceived risks of innovation and differentiation by undermining core assumptions and beliefs.
Table 1: Lawrence and Suddaby (2006); Canning and O’Dwyer (2016). Typology of forms of institutional work
2.3 Legitimacy
Institutional forms of work are associated with the legitimizing activities that is needed to effect new institutions (Lawrence et al. 2006, p. 220). The use of offshoring in Big Four audit firms is causing a change in the current way of audit practices. As described in previous paragraphs the standardized work of the audit is offshored. As described in 2.1.2 the primary reason for using offshoring is cost savings due to efficiency. However, Power (2003, p. 383) states that techniques must be legitimate before they can be efficient, although we usually think it is the other way around, i.e. that their technical efficiency supports their legitimacy.
The statement of Power highlights the importance of gaining legitimacy. The term legitimacy in the accounting literature is often broadly defined (O’Dwyer et al. 2011, p. 34; Suchman, 1995, p. 572). For example Andon, Free and Sivabalan (2014, p. 78) state that legitimacy is gained when something (e.g. offshoring) is considered ‘legitimate’ in a particular domain (e.g. Big 4 accounting firm) when it is generally and implicitly acknowledges as valid and thus deemed
consonant with broadly accepted norms, values and beliefs of that domain. On the other hand Deegan and Blomquist (2006, p. 346) note that an organisation is deemed ‘legitimate’ to the extent that there is “congruence between the social values associated with or implied by their activities and the norms of acceptable behaviour in the larger social system (e.g. Big 4 accounting firm) which they are a part”. In addition, Suchman (1995, p. 574) defines legitimacy as “Legitimacy is a generalized perception or assumption that the actions of an entity are desirable, proper, or appropriate within some socially constructed system of norms, values, beliefs and definitions”.
In conclusion, if legitimacy is accomplished within a specific group or social system, one may assert that the group or social system accepts and supports the new activities (i.e. offshoring standardized work) and perceive it as normal.
For this study the process of obtaining legitimacy internally in a Big Four accounting firm is investigated. In order to study the legitimacy process of offshoring, the legitimacy theory as described in O’Dwyer et al. (2011). This theory is useful in the analysis of attaining internal legitimacy for audit practices. Most legitimacy literature is focussed on the external legitimacy for new audit practices. However, gaining internal legitimacy for offshoring practices within the Big Four accounting firm is also important. O’Dwyer et al. (2011, p. 35) highlights that financial audit practitioners have sometimes struggled to secure legitimacy for new audit practices within their own professional service firms.
2.3.1 Forms of legitimacy
Suchman (1995) analysed different studies about legitimacy and identified three primary forms of legitimacy: pragmatic, moral and cognitive. O’Dwyer et al. (2011) uses this theory to answer the question on how legitimacy is gained for new assurance forms.
The first form of legitimacy is pragmatic, this type of legitimacy is the easiest to obtain. In short this kind of legitimacy can be described as legitimacy based on audience self-interest (Suchman, 1995). Besides this short description, Suchman (1995, p. 578) outlines also a more detailed description that pragmatic legitimacy rests on the self-interest calculations of an organization’s most immediate audiences. In other words, it focuses on complying with the desires and interests of the key audiences. Kumar and Das (2007, p. 1434) formulate this type of legitimacy as that alliance members see their involvement and contribution as furthering their won interest and the interest of the (larger) alliance. O’Dwyer et al. (2011, p. 36) defines it in its simplest way as exchange legitimacy, the support for a new practice is based on the practice’s specific (larger) value for the organization.
The second form of legitimacy is moral legitimacy. This form of legitimacy does not only focus on only complying the interest of an audience to gain legitimacy. Moral legitimacy focuses on whether something is the right thing to do (Suchman, 2015, p. 579). In other words, is the society as a whole positively affected by the activities that are performed? O’Dwyer et al. (2011, p. 36) elaborates on this by noting that it may be based on evaluations of its outcomes and consequences; techniques and procedures; leaders and representatives; and categories and structures. Greenwood describes moral legitimacy as nesting and aligning new ideas (i.e. offshoring) within prevailing normative prescriptions (2002, p. 60). Overall, it could be stated that moral legitimacy is based on the assessment of the organization if it is the right thing to do for the organization as a whole. Moral legitimacy is harder to obtain compared to the pragmatic legitimacy because the activities have to be aligned with the expectations of the society of organization as a whole and not just solely on the key ardencies.
The last form of legitimacy is cognitive legitimacy. This type of legitimacy is long lasting since it is achieved when practices are taken for granted as being appropriate, proper and desirable (O’Dwyer, 2011 et al. p. 36). Greenwood (2002, p. 61) describes that once cognitive legitimacy is achieved, ideas or practices can survive across generations, uncritically accepted as the definitive way of behaving. In other words it is embedded in the systems of the people in the organization and it is seen as a day-to-day activity. Lawrence et al. (2006, p. 220) notes that advocacy work is associated with creating institutions because it a key element by which actors initially acquire legitimacy they need to affect new institutions. Moreover, Suchman (1995, p. 584) observes that advocacy can ultimately lead to cognitive legitimacy. The forms of legitimacy work are summarized in table 2.
Types of legitimacy Pragmatic Moral Cognitive
Values added Audiences’ specific or
broader self-interest Audiences’ views on welfare of society Subconscious attitudes of what is appropriate, proper and desirable
Durability Low High
Ease and speed of
establishment Easy fast Difficult slow
Table 2 Summary of forms of legitimacy Suchman (1995)
The legitimacy forms are outlined above as separate forms. However, O’Dwyer et al. (2011, p. 36) discuss that in practice these forms can merge with one another. Besides the fact that the three types of legitimacy reinforce one another, these forms can also come into conflict because all the audiences’ assessment of legitimacy are not of equal.
3 Research methodology
The objective of this study is to get an in-depth understanding of the perceptions of the employees in different job levels about the use of offshoring. In other words it is examined in what way the use of offshoring is embedded in the organization and how it is being legitimized to their employees. In order to address this objective qualitative methods are used. Yin (2009, p.8) notes that qualitative research gives the opportunity to answer how and why questions more in detail and depth.
Patton (2002) argues that there are three ways in qualitative research to collect data: − The standardized in-depth open-ended interview;
− Direct observations;
− Documentary analysis of written documents.
The methods employed in this study are documentary data analysis and in-depth interviews. Using two methods makes it possible to use data triangulation. In other words it facilitates in validation of the data through cross verification. (Shenton, 2004, p. 65). The documentary data are in some phases of the study used to verify the data from the in-depth interviews.
3.1 Documentary data analysis
It is important to have access to information resources related to the subject of this case. In order to gain a better understanding of the offshoring process, internal documents are analysed during the research process. All the documentary data that is used in this study is gathered within the Big Four accounting firm. The access is granted through a thesis internship at the financial institutions audit, from here on referred as (FIA), department within a Big Four accounting firm in the Netherlands.
The most important documentary evidence includes the audio recording of the kick-off meeting of the offshoring and the three e-learnings that were launched for the kick-off (internal document of audit department, 2015). The kick-off presentation was held and recorded in September 2015 to inform the employees about the change in the process of using the offshoring and the advantages of using offshoring services. To verify the data from the in-depth interviews about the process the kick-off webcast and the e-learnings were used. In addition to this webcast and e-learnings other documents were analysed such as, internal newsletters, online request form and the planning of the audits. These analysis contributed to the understanding of how the use of offshoring is brought under attention of the employees and is embedded in the organisation.
Appendix A outlines the internal documents that are used during the analysis. There will also be referred to these documents in the footnotes of the case analysis.
3.2 Interview evidence
In order to get an insight in the perceptions of the employees in-depth interviews are performed. Patton (2002) described that interviews are useful to get an insight into feelings, intentions, thoughts and knowledge of people.
Before the interviews were performed early familiarity with the culture of the organisation is gained. This familiarity with the culture is gained during a six-month part-time internship on the FIA department of the Big Four accounting firm. The interviews were also conducted at this FIA department of a Big Four accounting firm in the Netherlands. This FIA department focuses on clients in the financial industries such as banking, insurance and also real estate.
The researcher and the interviewees met each other before the study took place during this internship period. This establishes a relationship of trust between the parties (Shenton, 2004, p. 65). During the study continuously attention is paid to assure that professional judgement is not influenced due to previous engagement in the organisation.
3.2.1 Sample
In total thirteen employees of the FIA department were approached via e-mail to participate in the interview. Those thirteen participants were purposively selected in order to assure that they have experience with offshoring. Besides this, another argument for purposively sampling is to select participants from different job levels in order to get an insight on the different perspectives and possible contradicting views within the FIA department. For this study the participants were selected from one department within the Big Four accounting firm. The motive for this is to assure that an in-depth insight is gained in offshoring without any other influences that might bias the outcome.
Each employee that is approached had the opportunity to refuse to participate in the study. Shenton (2004, p. 66) notes that this increases the credibility because those participants that are involved are willing to take part in the study and are prepared to offer interview data freely. One employee did not respond to the invitation to take part in the study, therefore in total twelve interviews were conducted. The employees that were interviewed were at the level of assistant, senior assistant, assistant manager, manager and director; with two to twenty-seven years of
experience in the Big Four accounting firm. The interviewees that participated in the study are outlined in table 3.
The interviews took place face-to-face in the office of the Big Four accounting firm in Amsterdam. All the interviews are performed in the native language of the participants. In order to encourage the participants to be open and honest about their answers they were asked permission by the researcher if the interview could be audio recorded in order to ensure that the transcripts are reflecting the exact interview. All the participants agreed to be recorded during their interviews. Besides this they were informed that the transcripts are made anonymously.
The duration of the interviews ranged from 30 to 75 minutes and the average time of all the interviews is 45 minutes. The first interview was performed with one of the directors of the department that has 27 years of working experience within the organisation. The questions during this interview were based on the literature review of this study in order to have some guidance during this interview. Based on the literature review and data from this interview an interview guide with topics was created. The interview guide helps during the interviews to ensure that all topics were covered during the interviews (Patton, 2002, p. 343). The themes that were discussed are: history, current process description flexibility, motives, advantages and disadvantages, learning of the assistants and the future of offshoring. In order to get enough insight in the perceptions “how” and “why” questions are frequently used during the interviews. Pratt (2009, p. 856) acknowledges that qualitative research is great for addressing ‘how’ questions, for understanding the world form the perspective of those people that are studied.
All the interviews were transcribed in the same language as the interview, resulting in seventy-five pages of transcribed interview data. In addition to this number of pages, each transcript contains around one to two page English summary. The interviews were transcribed by the researcher within three days after the interview. After the researcher finished the transcript of an interview an e-mail was sent to the participant to validate the data from the interview. All the respondents validated their transcripts. Any additional ambiguities and comments that were made by the participants in the transcripts, were processed before the real analysis of the data continued.
Interviewee Job level Years of experience within the accounting firm
Date of interview Duration of interview (minutes)
D1 Director 27 27-02-2017 75
M1 Manager 7 29-03-2017 55
M2 Manager 7 30-03-2017 50
M3 Manager 5 04-04-2017 60
AM1 Assistant Manager 4 31-03-2017 60
AM2 Assistant manager 7 19-04-2017 45
SA1 Senior Assistant 2 11-04-2017 45
SA2 Senior Assistant 3 13-04-2017 50
SA3 Senior Assistant 3 20-04-2017 45
A1 Assistant 1 07-04-2017 40
A2 Assistant 1 14-04-2017 30
A3 Assistant 1 20-04-2017 30
Table 3: information about the persons that are interviewed 3.2.2 Interview data analysis
The data analysis started already during the transcription of the interviews. O’Dwyer (2004, p. 391) notes that describing the interviews yourself enables the researcher to give a better feeling for the data as the research progresses. Immediately after the interviews, notes were taken and after some interviews and an audio-memo is recorded with interesting items mentioned in that interview. While transcribing the interviews notes have been made about themes that recurred. Furthermore, while making the English summaries of the transcripts the interview data has been reread and structured by themes. After all the interviews were held the actual data analysis started. The process of data analysis consists of three sub phases: 1) data reduction, 2) data display and 3) data interpretation (Huberman & Miles, 1994; O’Dwyer, 2004).
The data reduction phase and the data display were used in this study at the same time. The data display consisted in this study of recoding initial themes. Some themes were already addressed in the interview guide and while making summaries of the transcripts. All these themes while analysing the data were addressed in the interviews. While analysing also contradicting or interesting items which did not fit completely in one of the themes were marked. Furthermore, using the interview guidance some sub-themes were already grouped in one primary theme. Once
all the primary themes were identified, a Computer Assisted Qualitative Data Analysis Software (CAQDAS) package, Atlas.ti, was used to structure the extensive interview data.
Before the data displaying all the transcripts were made anonymous, by omitting names, client names and any references to Big Four accounting firm. Data displaying was done after uploading all the files in Atlas.ti. It started with coding the interviews one by one and creating more sub-themes when needed. The final coding matrix is displayed in Appendix C. In total thirty-five codes where created during the analysis which were grouped in 8 themes.
The last phase covers the data interpretation this was done in two stages. First a loose framework was made with the literature and reduced data that was collected to give some structure and to get a bigger picture of the data. After that a narrative is written with all the gathered based on this loose framework. During the ongoing analysis while writing some items of the narrative were moved back and forward to get a clear and structured narrative. The interviews transcripts were read again to identify any missed codes, themes, explanations or contradictions. Once the first descriptive draft was finished, the draft was again re-analysed.
4 Case analysis
The case analysis is presented in this chapter. The most important findings of the conducted interviews are presented. The narrative starts with the history of offshoring within the Big Four accountancy firm, referred to as AFN from here on. This will be followed by the offshoring process at this moment, the difficulties in offshoring, the limitations of offshoring and the implications for the future of offshoring. During the interviews information was gathered within the FIA department on the notion of the FIA department employees on offshoring and how this is embedded and legitimized in the organisation.
4.1 History
During the analysis of the data it is evident that the history can be separated in different phases. It all started with one employee that started using offshoring services. After that the management decided to expand the use of offshoring services within the audit department, this led to the lack of support for offshoring and resistance.
4.1.1 Start of using offshoring
Offshoring parts of the audit work from the Netherlands to India started around 2005 in cooperation with the United States (US) member firm1. The Unites States member firm was already based in India with their United States Offshoring office (USO). The USO is established by the US member firm, in other words the US member firm based an office in India which is still part of the US firm. All the work that is delivered by the USO is performed in accordance with the US audit standards. The USO is seen by the US member firm as an office that is operating in an extra region that performs work in different sectors for them.
“The US firm used USO for tax and consulting services, later they added audit services…They [the US member firm] divided the United States in nine regions and the tenth region became India. It [the USO] is established by the US member firm and not by the Indian member firm. In other words, it is a foreign firm that established an office in India with Indian employees that are working for them [the US member firm]” (D1)
1 Member firms are firms that are operating in name of the Big Four accounting firm in this study. Each member firm
offers services in certain geographic areas (such as the Netherlands or UK) and each firm is a legal separate and independent entity.
The US member firm established an office in India due to shortage of employees in the US and to save costs during the audit.
“The US firm established an offshoring office in India to save costs but also because there was a lack of human resources in the US. It is also hard to find employees [for the audit profession] in the Netherlands” (D1)
One director, who has almost twenty-eight years of experience in the field of financial audit within the AFN, was involved in the start of offshoring audit work in 2005. At that time, the director (referred to as director from here on) just made promotion as a director on the FIA department of the AFN. The AFN made an agreement with the US member firm to offshore audit work to the USO. The AFN could sent audit work to the USO, the USO planned USO employees on these assignments and the AFN received an invoice which stated the hours spent on the assignment by the USO. The employees of the USO are Indian people with a degree in finance or accounting. The director and the team that were auditing investment funds and hedge funds, standardized parts of the audit work, such as balance sheet accounts, cash accounts and equity.
“I started using USO for [audits of] larger clients that were in my portfolio, such as investment funds and hedge funds….Every year I worked with the same team members from India…. During this time I also visited India several times and during my stay I built up a relationship with the Indian employees.” (D1)
The director can be seen as an institutional entrepreneur since he sees an opportunity for offshoring audit work. Furthermore, he is leveraging on existing sets of work that are taken for granted within the AFN, this made it possible to associate the new way of working, so standardizing and offshoring parts of the audit, with the old way of working, carrying out the work by the employees of the AFN (referred to as local employees from here on). Offshoring the work to India is indistinguishable from the existing system since the work is still connected to the audit which is performed in the Netherlands. The only difference is that the work is not performed by the local employees but it is performed in an offshoring centre. However, the audit work that is performed by the USO is still reviewed by local employees2.
The mimicry work that is described above was partly accomplished. Furthermore, it is also supported by the fact that there were not enough human resources to finish the audit work. In
2 During an audit, the work that is performed by the lowest job levels is always reviewed by job level higher. For
example if an assistant is finished with audit work the senior assistant will review that work. At the end of the audit the signing auditor will review the whole audit file.
addition to this, it also saved costs on the audit as Farrell (2005, p. 676) and Lewin et al. (2006, p. 226) already noted that one of the main motives for offshoring services is to save costs.
“The main reason for using USO at that time was due to the fact that it was busy season over here and we did not have enough human resources to finish the work. We standardized large parts of the audit work and sent it to India… Furthermore, the wages are lower in India so another reason in that time was cost savings” (D1)
In addition to the mimicry work, the director and the local employees on the audit team also constructed a framework that provided themselves the opportunity to work with the USI. By standardizing the audit work they created an outline for themselves but also for the Indian people to work with each other. The standardization of the audit work, or in other words educating work, was essential to identify its level of involvement in the offshoring process and the level of involvement of the USI in the offshoring. The local team created a framework, also called template, in Excel to execute the audit procedures in the same manner for 240 different entities of that audit client. Besides the Excel template, they also wrote a document with detailed instructions which steps and procedures should be taken in order to execute the audit work. They created these templates for account balances where ‘number crunching’ and bulk work is involved, such as cash and equity. Moreover, the local team standardized the educated the USO team by providing them with feedback on their audit work.
“We made templates to illustrate how the audit work should be executed… We created packages which included the Excel template and a document with detailed instructions and procedures that should be followed when executing the work… We used USO for cash accounts but also for reconciliation purposes… so, the work with a lot of number crunching and bulk work. They executed some templates around 240 times. We [local employees] reviewed all their [USOs] work and provided them with feedback which they processed…It really worked excellent because we standardized the work program for the employees in India and it was also profitable” (D1)
4.1.2 Expanding the use of offshoring
Because the use of offshoring was so successful and profitable for the director. He informed also other colleagues, such as partners, directors and managers, on the audit department about the opportunities for offshoring audit work to the USO.
“I send an e-mail to the audit partner group to inform the about the opportunities in India. Some of those people wanted to participate others did not react to this e-mail…I approached those other colleagues from the FIA department which were interested and had identical audit clients in their portfolio, such as funds
platform audit clients, I told them that they could use USO in cooperation with me. At a certain moment the use of USO increased on the FIA department but also outside this department” (D1)
The director informed other colleagues on his department about the USO. He informed them that it could solve the problem that more partner experienced at that time, the shortage of human resources by subtle political suasion. He informed the other employees in the FIA department about his experiences with the use of USO and that there are opportunities for cost saving in the audit. The director used soft advocacy work to promote the use of offshoring on the audit department. However, the director did not deliberately used persuasion techniques to allocate more audit work to the USO. He just identified the benefits he experienced and promoted the use of USO to other colleagues. He tries to create a status for offshoring audit work to India in on the FIA department. Some of his colleagues were interested and participated in the offshoring initiative. However, other partners did not respond to the opportunity to offshore parts of the audit work. This suggest that limited level of pragmatic legitimacy is achieved, since the director only convinced the actors that are interested in the offshoring services.
The use of offshoring audit work to the USO increased rapidly on the FIA department. Moreover, also other audit teams outside the FIA department started using services of the USI. However, at a certain moment the growth of the use of USO on the department slowly declined. This decline was caused by the group of partners, directors and managers that were less interested in offshoring audit work and did not made use of the USO. All the interested partners or managers were already using the services of the USO for their audit clients.
‘Later on the management decided to make it mandatory for each partner to send a fixed percentage of their audit hours to India. The main reason for this at that moment was that not all the employees used USO services…This was the point where some of the partners resisted the use of the USO. Some of the partners did not organize it properly [no clear instructions] and that led to a lower quality of the audit work [that was executed by the USO]…Due to the resistance of some of the partners the use of USO slowly ended. Some people still used India for small assignments but it was not used at large scale anymore.” (D1)
However, not all the partners were convinced by the soft advocacy work of the director. Therefore, a shift occurred later in the process from soft advocacy to hard advocacy. The management made use of direct and threatening practices by making it mandatory for partners to offshore certain amount of their audit hours. This allowed the management to shape the importance of using offshoring and to encourage the partners to use it. The management was focused on ensuring that offshoring was embedded in the organization. The management is trying to achieve cognitive legitimacy by determining norms, thus the target, which should be followed. The target could be
violated by the partners, the reaction of the management is to sanction the partner for not achieving the pre-set norms. Suchman observed that advocacy can ultimately lead to cognitive legitimacy.
However, in reaction to this, the partners and managers of the FIA department continued with their day-to-day routines and did not offshore any audit work to India. They rejected the creating work of the management, therefore the attempts to establish cognitive legitimization was disrupted. The partners, directors and managers kept assigning work that could be offshored to the local employees. In other words, they actively infused the normative foundations of the audit work by assigning audit work to their local employees. By performing this routinized work, the partners indirectly gave a signal they are not supporting the use of offshoring, therefore, the use of offshoring services gradually decreased to a low level.
“I occasionally made use of USO for checklist. I had one contact in USO which I always sent IFRS-checklist work. At the end a good document was delivered but it was always delayed. Most of the time he announced that I would receive the document tomorrow but instead I received it a week later. I usually used USO for clients without a strict deadline.” (M3)
“I send only small assignments to them [the USO], such as [IFRS]-checklist or loading [trial balances] but real audit working papers [such as cash working paper reconciling the cash balance to the bank statements] was not executed by the USO” (M2)
4.2 Re-designing the process
Although, some people still used the USO for offshoring small audit assignments. The head of operation (HOA) of the audit of the AFN started redesigning around 2014 the old process that was used to offshoring audit work. He established a new offshoring centre in India called to Affiliated Offshoring Centre (AOC).
The HOA performed mimicry work as an institutional entrepreneur. The HOA he sees an opportunity for re-designing the process of offshoring audit work. Furthermore, he is leveraging on existing sets of work, such as the old offshoring process, although that were not used very often, it was sort of taken-for-granted within the AFN. The HOA elaborated on the old offshoring process and tried to re-design the process in order to accomplish that it will be used during the audit. The HOA made it possible again to associate the new way of working, so standardizing and offshoring parts of the audit, with the old way of working, carrying out the work by local employees. Offshoring the work to India is indistinguishable from the local employees since the audit work is still reviewed by the local employees.
“The HOA redesigned the process by standardizing work and creating a fixed team, so called blocked head count, within the USO firm that is only working for the Dutch firm”(D1)
The main reasons for re-designing the process because the current business model is not sustainable. One of the reasons why the business model is not sustainable is that the costs of the audit are rising because additional hours are spend on the getting a higher quality on the audits in order to comply with the regulating bodies. Therefore, more resources are needed to finish the audits, thus another reason resulting from the unsustainable business model is that there is still a shortage in human resources capacity.3
“The main advantage of offshoring is saving cost… the costs are incredibly low and if the process is becoming more user-friendly than the economic benefits will increase. That is the point where you want to be with the offshoring project” (M2)
“The main motive for using the AOC is that the costs are low. That is in my opinion the main reasons why we use them [AOC] because the labour costs are lower” (M3)
“Lowering costs is motive number one” (SA3)
“The hourly rate is in the Netherlands much higher than the hourly rate in India. The main reason why they make use of it [the AOC] is cost saving on the easier accounts” (A3)
“I think that using offshoring is good for the firm because you have more human resources so more capacity.” (D1)
“I experience on our department that we have a shortage [of employees] which can be solved by people from India. The supply and demand in accountancy is not the same. In some years the outflow of employees is high and you are getting short on supervisors.” (M1)
“…it is hard to find people for our firm. Besides that we hire each year a lot of people we still need to reject clients because we have do not have enough human resources” (SA2)
At this moment around ninety Indian people are working for the AFN in India. The first 50 employees that were hired in the first year of the AOC were selected by the HOA. All the AOC employees have master degree in either MBA finance or Chartered Analysist (CA) qualification.
3 These motives addressed in the first e-learning of phase 1 about the AOC. The HOA explained why it is time to
The AOC employees are recruited from a number of business universities around the area where the AOC is located.4
One of the major changes that was made is that before the US member firm planned one of their USO teams on an audit of the AFN. Nowadays, the people that are working at the AOC are hired by the AFN and the AFN has the full authority over these employees to assign them audit work. Nevertheless, the AOC employees still get their salary payment, access to the offices and security via the US member firm. This is mainly because of practical reasons because the US member firm already built a system for such things.
“The first year we hired a group of around 50 Indian people. The second year some people left and now we have around 90 people working for us…Before, when I was working with offshoring, you made a request to the US member firm to plan a USO team on the Dutch audit, but that USO team is still part of the US firm. In the new situation, we [the AFN] hired Indian people but they [the hired Indian people by the AFN] still use the USO office, USO security and their salary is paid by the US firm. So, practically there are still part of the USO but there are not planned on audits of the US member firm, because we have the full authority to plan them on our audits…We make use of the USO systems for those employees because, otherwise we need to create a separate system for the salary payments etcetera which is already organized and accessible through the US member firm.” (D1)
In 2015 the newly redesigned process was launched within the AFN by the HOA. Each participant gave an example of the re-designed process. The process of offshoring audit work starts with the engagement team. The engagement team is the team that is working on the audit in Netherlands. The engagement team is consists of auditors working at the AFN from different job levels, such as assistants and managers. If the engagement team wants to make use of offshoring services they need to plan this in advance. Before an audit starts the engagement team has a pre-audit meeting, where they discuss the audit and the planning of the audit. During this meeting, the engagement team decides if they will use services of the AOC in the audit. The final decision of making use of the AOC is made by the manager or the partner.
“The use of AOC is one of the topics which is discussed during the pre-audit meeting. We discuss with the team which items could be offshored and how we organize this.” (M1)
“We [assistants] could instigate the use of the AOC but the people [managers and partners] that give guidance to the team are deciding” (A3)
4 Web-cast of a kick-off call with the HOA, to give people a general introduction of the AOC before they start doing
After the decision is made to offshore audit work the AOC, the engagement team sends a request to the mid office. The mid office team, which is based in the Netherlands, consists of four (assistant) managers with previous experience in the audit profession5. The mid office serves as a linking pin between the engagement team in the Netherlands and the AOC operations team in India. The request can be send by using a standard online application form which includes ticking boxes that can be selected if they want to make use of the services. For each of those services a lead time is given, the lead time is based on mid office activities, such as processing the intake work form the engagement team, reviewing the work coming back from the AOC operations, planning of work and assigning it to the AOC resources and providing feedback on the output of the AOC. Furthermore it is based on the executed audit work of the AOC operations, such as reconciling the cash account balance with the bank statement in an Excel working paper.Besides the tick boxes that can be selected, the audit client ID, contact persons and the reviewer of the engagement team, need to be filled in. Besides this additional information is asked for each service that you want to make use of. For example if you select for example, cash account for offshoring services, you need to state the number of bank accounts, prerequisite delivery data of the bank statements of the client and the due date to indicate when you want the work to be finished. 6
Once the form is filled in, it will be sent to the mid office. It depends on the decision of the manager who is taking care of planning the AOC for the audit, but this is mostly coordinated by either a senior assistant or an assistant.
“You need to appoint someone for this that is an experienced assistant. Normally this senior assistant would coordinate assistants and now they coordinate the AOC… On advantage is that first year assistants already get in contact with the AOC and already know how it [the AOC] should be arranged, planned and coordinated.” (M2)
The mid office assesses the application based on feasibility and completeness of the data required to start the process. If the application form is approved by the mid office, the AOC will be planned for the audit work that needs to be executed. The engagement team will receive confirmation mail that the AOC is planned for the mentioned period in the request form.
“…You fill in the request form with the client details, number of hours and the work that you want to offshore. You will send this form to the mid office and the mid office processes the form and if needed asks additional questions. After that you receive an e-mail with the conformation and with the deadlines and
5 Internal website page where you can meet the teams (mid office and interim educators) virtually and see which roles
people have in the AOC offshoring process
