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Sikka: Audit outsourcing detrimental to quality

At the official launch of the UK Labour Party’s report, Reforming the Auditing Industry, concerns were expressed over the amount of audit work that is outsourced by the Big Four and the affect it may have on audit quality.

Prem Sikka, lead author of the report, noted that sources from within Big Firms told those working on the report that up to 20% of audits, in terms of hours, were being outsourced to countries such as Bangladesh, India, Vietnam and Romania, amongst others, where the audit regulator does not have any jurisdiction.

He described them as ‘effectively call centres processing information overnight’. 

He said that once this issue was raised, those working on the report questioned Big four partners on this issue as previously they had made no mention of outsourcing audit work. Once questioned, they admitted that some of the audit work was outsourced, but that it equated for about 6% upwards of the total time spent on the full audit.

Sikka said: “There is no revelation anywhere in any audit report, any public document, what percent of audit was actually outsourced.”

The report stated: “A mechanical checklist mentality dominates within the firms to the detriment of audit quality. A culture of profit maximisation has resulted in inadequate time budgets, irregular auditing practices, offshoring (or outsourcing) of audit work and reliance upon work performed by staff not under the direct control of the firms.”

Sikka drew parallels between how outsourced audit work may be going to people who are not appropriately qualified and how the audit of BHS was conducted before it collapsed. He said: “The audit partner spent two hours on the job and the audit team on the daily basis was basically supervised by somebody with one year of post-qualification experience.”

A PwC spokesperson said: "We are committed to constantly improving audit quality. We do not outsource audit work outside of the PwC network. All work, wherever it is performed is the responsibility of the UK audit engagement leader and all of the working papers are kept on the UK audit files and are available to our regulators."

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